The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: TropicNebraska on January 13, 2015, 08:34:40 AM
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Looking to get long into oil companies and MLP's for juicy dividends to help build a passive income stream. Where does the forum think on a oil bottom to get in? The "experts" say $20-40/bbl, then recovering to $50-70/bbl by summer as shale producers shut down production and summer driving season ramps up.
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I would wait for all the analyst to basically go to sell/hold ratings before I started looking at oil companies. The knife is still falling from the sky.
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Option 1 – buy barrels of oil, store them and sell them at a profit when the price improves
Option 2 – buy shares in oil companies. Which ones? Which ones hedged their price? Which ones are cheap and will increase in price? Which ones will get swallowed up in mergers on the cheap?
Option 3 – find an energy/oil etf and buy that…
Unless you are into trying to time the market or have a background in researching oil companies then I think option 3 would be the one with a greater chance of a good return (notice I didn’t say the best return!!)
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I hear the oil whores in the shale fields are making 10 times as much as the drillers. Something to do with supply and demand. You should do really well with this endeavor.
That and wait for well past the bottom to buy.
The reality is that the current price drop is just acknowledging the new reality of oil. The sheiks are saying that 25 dollar a barrel oil is coming and that they are comfortable with that price for a very, very long time. So we may not see a huge rebound in big oil company profits. Although, they will be very likely oversold at some point making for at least a decent bottom fishing expedition.
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Looking to get long into oil companies and MLP's for juicy dividends to help build a passive income stream. Where does the forum think on a oil bottom to get in? The "experts" say $20-40/bbl, then recovering to $50-70/bbl by summer as shale producers shut down production and summer driving season ramps up.
so... instead of trying to look in your crystal ball to determine the bottom, might I suggest an alternative? Buy some now. Buy some when it goes down another $10. Buy some when it goes down another $5.... etc.
If you wait to find the bottom... you're likely to miss it.
(Love the Francisco D'Anconia quote, btw.)
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Looking to get long into oil companies and MLP's for juicy dividends to help build a passive income stream. Where does the forum think on a oil bottom to get in? The "experts" say $20-40/bbl, then recovering to $50-70/bbl by summer as shale producers shut down production and summer driving season ramps up.
so... instead of trying to look in your crystal ball to determine the bottom, might I suggest an alternative? Buy some now. Buy some when it goes down another $10. Buy some when it goes down another $5.... etc.
If you wait to find the bottom... you're likely to miss it.
(Love the Francisco D'Anconia quote, btw.)
The problem is that he or she likely thinks that it's cheap because the price has done down, not because of his or her independent valuation. Thus, instead of knowing that it's cheap now, the only way to know something is cheap is in hindsight knowing that it has reached the bottom. This is the speculator's dilemma.
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I agree with Spork and would add buy the XLE instead of trying to guess who is going to make it and who isn't. If you have vanguard you can buy the VGENX as well.
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I would wait for all the analyst to basically go to sell/hold ratings before I started looking at oil companies. The knife is still falling from the sky.
+1.
It's waaaay too early to get into the oil patch. The numbers have to come down first and that will take a few months, perhaps by this summer, perhaps not until this fall. You can buy BP now at $35, or wait and get it at a 2-handle.
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Of course those numbers coming down could already be factored into current prices......hmmmmmm.....
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I'm no pro, so brace for a question barrage:
Isn't the price of oil much more dependent on political activity as well, rather than strictly economic? I.e. the reason for the current low prices is because oil producing nations are trying to price Scumbag Russia out of the market and destroy their economy. Also Venezuela. According to this logic maybe wait until the next political or military crisis for a major oil producing nation or region, and invest.
Also because of that, and the vast amount of oil that is kept in reserve, price fluctuations are heavily delayed (12 months?)... I have heard at least.
Another option: "In the time of a gold rush, invest in shovels." What are some industries, ETFs, companies that are benefitting from the low oil prices?
Option 3: Invest in alternative energies.
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Another option: "In the time of a gold rush, invest in shovels." What are some industries, ETFs, companies that are benefitting from the low oil prices?
Transportation. they'll have bought for the future at higher than current prices but as time moves forward the higher buys will be replaced by lower prices. I reckon shipping could do very well.
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The problem with an oil company ETF is there will be a lot of marginal producers along with good companies that can weather the slump in oil prices and acquire weaker rivals to come out better on the other side.
You have a few options:
1- Really any of the majors should do ok. I would buy a basket of quality oil companies and oil service providers and wait. It could take a really long time (even 5-10 years) for oil prices to return to $100/barrel. You do not want to be holding companies with production costs in the 70's and 80's. They will go under and/or be bought out at a discount.
Quality Oil Co's (or service providers): XOM, NBL, NOV, DVN, and KMI
2- Your other option is to buy companies that are beaten up by low oil, but have other business lines to weather the low prices and decreased production. Rail, Shipping, Engineering Co's, Natural Gas Co's beaten up for some of their oil holdings, etc.
3- Buy companies that benefit from weak oil. Travel and Leisure, trucking/logistics, maybe fast food and discount retail (more disposable income).
You could just stick to buying low cost index funds and leave this to the pros/speculators. There is really no telling how long oil prices will stay low. If they spring back this year you could make a killing in some of the leveraged shale oil producers. If they stay low for 2-3 years those same producers will be gone. It's hard to analyze the majors because they have so many moving parts. XOM and BP have very economic reserves, but BP has its legal issues and has a meaningful exposure to Russia. Proceed at your own risk!
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I'm pretty sure the guys at Always Sunny figured this out years ago...
https://www.youtube.com/watch?v=DrPYVUsDK6o (https://www.youtube.com/watch?v=DrPYVUsDK6o)
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I'm pretty sure the guys at Always Sunny figured this out years ago...
https://www.youtube.com/watch?v=DrPYVUsDK6o (https://www.youtube.com/watch?v=DrPYVUsDK6o)
HAHA Yes!
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not sure i mentioned it here on MMM but isn't the rising fuel efficiency of cars on average also going to cut on demand long term? Obama's plan to force manufacturers to meet higher fuel efficiency standards in their cars could have a signficant effect on the demand and people will be stopping at the pump less often than before with people always buying newer cars replacing older ones.
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not sure i mentioned it here on MMM but isn't the rising fuel efficiency of cars on average also going to cut on demand long term? Obama's plan to force manufacturers to meet higher fuel efficiency standards in their cars could have a signficant effect on the demand and people will be stopping at the pump less often than before with people always buying newer cars replacing older ones.
. Doesn't work that way in reality. People just drive more when they buy a fuel efficient car.
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not sure i mentioned it here on MMM but isn't the rising fuel efficiency of cars on average also going to cut on demand long term? Obama's plan to force manufacturers to meet higher fuel efficiency standards in their cars could have a signficant effect on the demand and people will be stopping at the pump less often than before with people always buying newer cars replacing older ones.
. Doesn't work that way in reality. People just drive more when they buy a fuel efficient car.
That's rather overstating Jevon's Paradox— driving has a time cost that doesn't go away no matter how cheap oil is, and a lot of people don't want to pay it anymore. People have been driving less, even as fleet fuel economy has been increasing:
(http://www.ssti.us/wp/wp-content/uploads/2014/02/2014-VMT-chart.jpg)
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More interesting graphs regarding oil at http://www.bloomberg.com/graphics/2014-america-shakes-off-oil-addiction/
It's a crystal ball, and it's a bit foggy, but I think $40-$50 a barrel is the new normal for years to come. $100 was probably the anomaly.
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More interesting graphs regarding oil at http://www.bloomberg.com/graphics/2014-america-shakes-off-oil-addiction/
That was dynamite. Thanks for posting.
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Wait and buy shares in whoever is buying the assets of the bankrupt companies. The lower costs basis should serve them well. It's the history of capitalism.
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There's no guarantee oil goes back up in price. New technologies are making drilling more affordable (hence the current glut). Policies are causing less gasoline to be used per mile--both from CAFE standards but also from the emergence of electric vehicles. And eventually there will be some taxes or prices on emissions that will make oil even less attractive compared to electric vehicles. Affordable electric vehicles with ~200 miles of range are promised by at least 4 major manufacturers within 2 years based on current battery technology. Even with low oil prices, electric cars are dramatically less expensive to power and maintain. It's entirely possible that 50% of new vehicle sales will be electric within the next 15 years.
Europe is pretty committed to reducing their carbon footprint, and is unlikely to do anything other than reduce oil use over time. China has too many people to allow them all to have cars, and they are spending hundreds of billions on huge subway systems. It's hard to predict where global oil demand is going to go, but it's not necessarily up.
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Just yesterday I was looking at my energy stocks and musing about buying some more of them. When I start musing like that it is usually a few months before I actually do it, but there are a few that aren't directly affected by oil prices, but have taken a beating in the general slide and might be worth expanding my holdings.* Not yet though.
That said, there is definitely no rush. There is a lot further to fall, and there will be quite a few marginal producers folding over the next few months - be very careful.
*I'm not much of a market timer, and most of my investments are just index ETFs. But I keep a small percentage of my stuff in direct stock holdings, and have done passably overall. I think it is an unnecessary but highly beneficial way to learn about markets, trading and stocks in general.
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Whores get STDs. Be careful.