Author Topic: What to do with Oil/Gas Stock?  (Read 26287 times)

BTDretire

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Re: What to do with Oil/Gas Stock?
« Reply #50 on: January 06, 2016, 08:57:33 AM »
Most of you guys are talking about buying oil company stock like Exxon (XOM) & Shell (RDSA) correct?  I was thinking of picking some of these companies up as a fun test.

Has anyone here actually purchased crude or futures on crude oil?  I am a rookie in this sense, and I have no idea what I am doing when looking to purchase.  What symbols do I look up?

 
 

I put a small chunk into Shell, BP, and Conoco, like you mentioned. Just kind of as a fun test. Hindsight I would have picked Exxon instead of Conoco.

Hey, I did a 'fun test' back on August 13, using UWTI, for a while I was up over 30%.
 Today I'm down 68%. Not so fun anymore. (UTWI is 3x leveraged so very volatile) Here's an oil price graph to show when I bought.
http://www.infomine.com/ChartsAndData/GraphEngine.ashx?z=f&gf=110537.USD.bbl&dr=5y

TheOldestYoungMan

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Re: What to do with Oil/Gas Stock?
« Reply #51 on: January 06, 2016, 08:59:58 AM »
This article might help you out:

http://www.joshuakennon.com/lets-talk-about-investing-in-oil-stocks-and-the-oil-majors/

The price fall is interesting to see.  If watching it is causing you heartburn, just look up the dividend payment date, only check the price then, and look at how many shares your reinvested dividend bought.  As the price of the stock tanks, the number of shares you get with the dividend goes up (usually, dividend cuts can happen also), so by looking at that number instead of the price number, you see your investment growing.

And since you weren't buying money, you were buying an ownership stake in the company, that's what is actually happening.  The day-to-day valuation of a piece of property you own is useless information.  It matters what it costs the day you buy it, and the day you sell it.  The price going down while you're buying is a good thing.

And if you were investing according to an asset allocation, rebalancing wouldn't mean selling at a loss unless the rest of your portfolio also tanked.  If this went down and others went up, you sell the others locking in the win, and you buy the losers, taking advantage of the lower price.

It's possible that oil companies will stay down over the long haul, but there's some reason to be optimistic.  Right before Christmas we saw the first tanker loaded with crude destined for foreign ports leave the US in 40 years.  It strikes me as exceedingly stupid to sell the stuff when prices are crazy low, but if prices recover, the U.S. producers are likely to see awesome returns.

Right now, some oil companies are folding, and the more stable ones are gobbling up the assets at steeply discounted rates.  Employees are being laid off and expansion plans halted to the extent the capital can be recaptured.  These are some of the most cutthroat businesses in the world, and they have no loyalty to any particular type of process or product.  They will go where the money is and they will succeed because they are great at it.

It depends greatly on the choice you made with respect to which oil companies though.  There are absolutely companies out there on the brink of bankruptcy, so blanket advice to just hold on or to buy more should be ignored.

I hold most of the US majors and will continue to do so.  But it is overall less than 1% of my portfolio (just for fun).  The other 99% is in index funds.

Drifterrider

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Re: What to do with Oil/Gas Stock?
« Reply #52 on: January 06, 2016, 11:46:52 AM »
You are entitled to your opinion; I'm entitled to ignore it.

My money, my rules.  YMMV

Jeremy E.

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Re: What to do with Oil/Gas Stock?
« Reply #53 on: January 06, 2016, 11:52:39 AM »
I see a very simple solution, sell all of them and buy VTSAX. I'm not sure if selling stocks before you do your taxes will allow you to tax loss harvest on your 2015 taxes, but if so find out the optimal tax savings by selling before and after you do your taxes this year to save on taxes in 2015 and 2016.

postvmvs

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Re: What to do with Oil/Gas Stock?
« Reply #54 on: January 06, 2016, 07:30:37 PM »
Reading through this post, the number of people insisting that oil would come roaring back reminded me of all the people in the early 2000s insisting that buying a house was a no-brainer because "real estate prices always go up". Not that this is the same scenario, but I do feel a strong herd mentality forming.

I bought some KMI when it was $42, based largely on the dividend. Flash forward less than a year and it is trading around $15 and has cut its dividend forecast. I am in a somewhat similar position to the OP, left wondering if I should cut my losses and accept my "education" or hold onto it, with the risk of an even further fall. It's in a 401K so no tax-loss harvesting.

SwordGuy

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Re: What to do with Oil/Gas Stock?
« Reply #55 on: January 06, 2016, 08:17:14 PM »
I think you should panic!

Yes, panic!!!

I'll be your good buddy and take it off your hands for $1.00 a share before it goes down to become penny-stock material.

And laugh all the way to the bank...

Seriously, the best group of investors are dead people.  The second best group of investors are people who bought stock and then forgot about it.

That is because neither group panicked and sold at a loss...


K-ice

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Re: What to do with Oil/Gas Stock?
« Reply #56 on: January 07, 2016, 09:59:37 AM »
My oil stocks have been a  roller coaster for about 8 years.

Luckey at one point there was a merger & I got half my stocks in cash & the other half was auto reinvested.

The cash was 4x my initial investment. Used for a Lump sum to mortgage.


These aren't exact numbers but let's say the remaining stocks have gone from 10K to 20K and are now at 5K. If only I had the sell crystal ball in June 2014.

I'm tempted to sell but I've held them for all this crazy ride, & since I got some cash out at one point, I'll just wait.


PS. Any new stocks are Vanguard ETF so I can sleep better. The more new money I save the better rebalanced I become.

Hopefully these oil stocks soon become such a small part of my portfolio I won't care.
(Fingers crossed this is due to new investments & not a bankruptcy)

dalekeener

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Re: What to do with Oil/Gas Stock?
« Reply #57 on: January 07, 2016, 10:31:13 AM »
For maybe 10% of portfolio would anyone be buying at this time RYE, XOM, CVX, or any MLP's as a long term hold?

Jeremy E.

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Re: What to do with Oil/Gas Stock?
« Reply #58 on: January 07, 2016, 10:56:33 AM »
People are quoting references that refer to S&P 500 or total stock market funds, "don't panic and sell at a loss". These apply much less to individual stocks. Individual stocks are much more risky, the historical data behind them is less reliable, and you should think about them very differently.

Scandium

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Re: What to do with Oil/Gas Stock?
« Reply #59 on: January 07, 2016, 11:04:18 AM »
For maybe 10% of portfolio would anyone be buying at this time RYE, XOM, CVX, or any MLP's as a long term hold?

10%? Heck no. Maybe 1-2%, if you must. I already hold plenty of oil companies in VTSAX and see no need to "tilt to oil".

OldStachesRule

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Re: What to do with Oil/Gas Stock?
« Reply #60 on: January 07, 2016, 12:19:42 PM »
The supply/demand of oil are secondary factors affecting price.  Keep in mind the Saudis can produce oil by simply putting a stick in the ground to the tune of $10/bbl, whereas the rest of the world is +3x that cost.  The simple fact is oil is a manipulated commodity and they can drive the market price.  Currently, they are pursuing a scorched earth policy to show the world whose really in charge and I see no signs of change in the near future.  They have a very strong cash position, can borrow money at low rates, or institute moderate austerity measures.

I would consider selling.  Don't be seduced and become a dividend whore.  You will still lose over the next few years.  If you prefer to hold long term since it's in a 401K, consider further downside protection such as Jan 2018 leap put options on USO.  Alternatively,  look at DWTI (3x inverse).  Good luck.

Proud Foot

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Re: What to do with Oil/Gas Stock?
« Reply #61 on: January 07, 2016, 01:32:13 PM »
For maybe 10% of portfolio would anyone be buying at this time RYE, XOM, CVX, or any MLP's as a long term hold?

If we are talking a direct investment (not holding equity mutual funds) portfolio then maybe. I personally would not be investing in a MLP because they are on my "Too Hard" pile right now as I have not read up on enough details of the MLP structure to understand them.

postvmvs

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Re: What to do with Oil/Gas Stock?
« Reply #62 on: January 07, 2016, 04:49:32 PM »
People are quoting references that refer to S&P 500 or total stock market funds, "don't panic and sell at a loss". These apply much less to individual stocks. Individual stocks are much more risky, the historical data behind them is less reliable, and you should think about them very differently.

Exactly. It is highly unlikely that oil prices will go down and stay down indefinitely -- but it could easily be this low or lower for years and years. For my case, a company like KMI could go bankrupt before oil goes back up.

protostache

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Re: What to do with Oil/Gas Stock?
« Reply #63 on: January 07, 2016, 05:19:13 PM »
People are quoting references that refer to S&P 500 or total stock market funds, "don't panic and sell at a loss". These apply much less to individual stocks. Individual stocks are much more risky, the historical data behind them is less reliable, and you should think about them very differently.

Exactly. It is highly unlikely that oil prices will go down and stay down indefinitely -- but it could easily be this low or lower for years and years. For my case, a company like KMI could go bankrupt before oil goes back up.

Sure, KMI might get bought up by one of the supermajors at some point. They have too many hard assets to be worth nothing, but their debt might wipe that out in a fire sale. My strategy is to buy the non-Chinese supermajors in equal weight and then sit on them for a decade or three, adding to them as I have fresh cash.

Seppia

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Re: What to do with Oil/Gas Stock?
« Reply #64 on: January 08, 2016, 04:32:08 AM »
I insist, if you buy an energy ETF or index fund such as VGENX, or if you hold Exxon or Royal Dutch, I don't think buying at the cheapest prices since the deepest of the latest crisis is a bad idea.

In particular the "sell and buy VTSAX" seems like spectacularly bad advice, you would be selling one asset at its lowest to buy another who's close to top valuations.


Retire-Canada

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Re: What to do with Oil/Gas Stock?
« Reply #65 on: January 08, 2016, 07:21:55 AM »
you would be selling one asset at its lowest to buy another who's close to top valuations.

You have no idea if this ^^^ is true. An individual O/G stock can go lower or to zero and VTSAX can go much higher and has virtually no chance of going to zero barring a WWIII or a zombie apocalypse.

As noted above comparing a single company stock to a broad based index fund is problematic. They have quite different risk profiles.

Ultimately you need to ask yourself why you are holding individual O/G company stocks? Is it part of your investment plan? If so and you still have faith in the plan follow it. If it was some random move that seemed like a good idea at one time and you are just holding them in the hope that one day they will be higher so you can sell them and lose less money which you will invest according to you investment plan you have to decide if that's worth the risk and lost opportunity cost of investing that money in your plan.

Nobody is suggesting selling assets in your investment plan that are low to buy assets that are high as some normal mechanism.

Seppia

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Re: What to do with Oil/Gas Stock?
« Reply #66 on: January 08, 2016, 08:04:33 AM »
Maybe my post wasn't written clearly (sorry) but I was implying holding one of these three:
- VGENX
- XOM
- RDS.A

The first is a vanguard index fund energy sector
The second is Exxon and the third is Royal Dutch.
The chances of any of the three going to zero are only slightly higher than VTSAX going to zero, but still lower than a zombie apocalypse

powskier

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Re: What to do with Oil/Gas Stock?
« Reply #67 on: January 10, 2016, 11:47:53 AM »
Buy more at current low prices to get your cost basis down and wait 5 -15 years for cycle to play out or sell at a loss as did Retire Canada.
First option is smarter IMO.

MustacheAndaHalf

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Re: What to do with Oil/Gas Stock?
« Reply #68 on: January 10, 2016, 12:59:20 PM »
Before you buy Vanguard Energy or oil stocks, read up on OPEC and what they're doing.  OPEC controls oil prices world wide - not a conspiracy theory, but an actual cartel mostly controlled by Saudi Arabia.  For years Saudi Arabia has cut back on production to keep the price stable, but ultimately they saw non-OPEC producers taking advantage and increasing production.  So Saudi Arabia / OPEC started a price war to bring the oil market back into line.  If you buy cheap energy stocks, you are betting against OPEC in it's home turf.

aschmidt2930

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Re: What to do with Oil/Gas Stock?
« Reply #69 on: January 10, 2016, 02:52:03 PM »
Hold it, assuming it's a major company like Exxon.  This is a sector with significant risk and it sounds like you're very dependent on it.  I'd avoid buying more, not counting anything acquired in an index purchase of course.

use2betrix

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Re: What to do with Oil/Gas Stock?
« Reply #70 on: January 10, 2016, 03:20:33 PM »
Before you buy Vanguard Energy or oil stocks, read up on OPEC and what they're doing.  OPEC controls oil prices world wide - not a conspiracy theory, but an actual cartel mostly controlled by Saudi Arabia.  For years Saudi Arabia has cut back on production to keep the price stable, but ultimately they saw non-OPEC producers taking advantage and increasing production.  So Saudi Arabia / OPEC started a price war to bring the oil market back into line.  If you buy cheap energy stocks, you are betting against OPEC in it's home turf.

Other than low oil prices driving small oil producers out of business (which are more likely being gobbled up by big players) what does Saudi Arabia have to gain by permanently keeping oil at $30/barrel vs, say, $70/barrel?

I understand what Saudi Arabia is doing, I just don't think that $30 barrels of oil will be the new norm for the next 5-10 years.

Retire-Canada

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Re: What to do with Oil/Gas Stock?
« Reply #71 on: January 11, 2016, 07:10:55 AM »
Other than low oil prices driving small oil producers out of business (which are more likely being gobbled up by big players) what does Saudi Arabia have to gain by permanently keeping oil at $30/barrel vs, say, $70/barrel?

I understand what Saudi Arabia is doing, I just don't think that $30 barrels of oil will be the new norm for the next 5-10 years.

The question you need to ask yourself is how does oil go back up in price?

Who will stop pumping oil? A lot of the oil producers cannot stop pumping even though the price sucks because they need the money right now for their governmental budgets. Even the Saudis have burnt through a lot of cash on this exercise of forcing cheap oil. Iran is working on returning their production to full steam and they need the cash badly. Their oil isn't even in the market yet.

Then look at all the green tech and where power generation for homes and transport is going. Even if that effect is 10% or 20% reduction in demand the world can still pump and use a ton of oil, but if supply is greater than demand the cost will stay low.

With all the fear for the last couple decades about peak oil I think we are reaching a different peak oil.....peak demand for oil. We'll still use oil for the rest of my life, but I don't see demand rising again like it has in the past. There is too much pressure on carbon reduction and too many good alternatives. Those alternatives are getting better every year and will just keep getting better.

When business friendly non-evirobmentalist types like the Governor of the Bank of England are telling oil companies to be ready to write down their assets and that they will not be able to pump existing reserves out of the ground you have to get the sense that times are a changing and the usual commodity cycles are not in play for oil any more.
« Last Edit: January 11, 2016, 07:25:38 AM by Retire-Canada »

Proud Foot

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Re: What to do with Oil/Gas Stock?
« Reply #72 on: January 11, 2016, 08:10:27 AM »
Other than low oil prices driving small oil producers out of business (which are more likely being gobbled up by big players) what does Saudi Arabia have to gain by permanently keeping oil at $30/barrel vs, say, $70/barrel?

I understand what Saudi Arabia is doing, I just don't think that $30 barrels of oil will be the new norm for the next 5-10 years.

I don't think $30/barrel oil will be the new norm.  The OPEC countries are right around the break even point for their production while the drillers in the US are losing money big time at current prices.  While the small producers will go out of business the bigger companies will eventually decrease production in the areas that are the big losers.

Recently Congress approved to reopen and allow for oil exports.  I don't think we need to be exporting our oil until we have met the domestic demands and no longer are importing oil. 

soccerluvof4

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Re: What to do with Oil/Gas Stock?
« Reply #73 on: January 11, 2016, 08:11:25 AM »
I always believed to be a little overweight oil so own the VGENX despite having VTSAX etc.. its a very small position so not really worried about it but my cost basis is about 40% higher than here. Thinking about adding to it , has anyone else done so? just curious is all. Thanks

MustacheAndaHalf

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Re: What to do with Oil/Gas Stock?
« Reply #74 on: January 11, 2016, 09:29:49 AM »
... So Saudi Arabia / OPEC started a price war to bring the oil market back into line.  If you buy cheap energy stocks, you are betting against OPEC in it's home turf.
Other than low oil prices driving small oil producers out of business (which are more likely being gobbled up by big players) what does Saudi Arabia have to gain by permanently keeping oil at $30/barrel vs, say, $70/barrel?
Destroying the competition, and regaining control over the oil market.  Saudi Arabia has both large asset reserves, and a cheaper cost to produce oil.  Saudi Arabia can make a little money at these prices while everyone else is taking losses.  But actually, the logic of it doesn't matter - OPEC has made a decision, and claims they will keep oil prices low for years.

So if you're holding energy stocks, according to OPEC you need to be ready to wait for years before things return to normal.

shotgunwilly

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Re: What to do with Oil/Gas Stock?
« Reply #75 on: January 11, 2016, 10:21:59 AM »
I always believed to be a little overweight oil so own the VGENX despite having VTSAX etc.. its a very small position so not really worried about it but my cost basis is about 40% higher than here. Thinking about adding to it , has anyone else done so? just curious is all. Thanks

I've bought VGENX every month for the past year, and have decided to continue doing so.

Retire-Canada

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Re: What to do with Oil/Gas Stock?
« Reply #76 on: January 11, 2016, 02:16:45 PM »
Other than low oil prices driving small oil producers out of business (which are more likely being gobbled up by big players) what does Saudi Arabia have to gain by permanently keeping oil at $30/barrel vs, say, $70/barrel?

I understand what Saudi Arabia is doing, I just don't think that $30 barrels of oil will be the new norm for the next 5-10 years.

Quote
There is a persistent fear within the Palace that oil could someday be rendered obsolete. While the Kingdom could withstand a few years of low oil prices, it would be toast in a world where oil was worthless. But is that even possible? Sheikh Yamani, who was Saudi Arabia’s oil minister from 1962 to 1986, thinks so. He told the Telegraph in an interview back in 1999:

""Thirty years from now there will be a huge amount of oil—and no buyers. Oil will be left in the ground. The Stone Age came to an end, not because we had a lack of stones, and the oil age will come to an end not because we have a lack of oil.""

So is oil going to be obsolete in 15 years? Probably not, but the fear hangs over the Palace like a dark cloud. A decade of consistently high oil prices has affected the elasticity of oil in major consumer nations, like the U.S. Oil consumption growth started to level off in the last few years, as price-sensitive consumers conserved and sought alternatives. Much of these consumption changes were structural in nature, meaning that demand had been permanently destroyed.

This trend isn’t limited to the Western world. In China, diesel demand fell in 2013 and 2014, after rising at an average rate of around 8% annually in the previous decade, according to the International Energy Agency. The rise of cheaper alternative fuels, namely natural gas, was blamed for the decrease, causing the IEA to cut almost half a million barrels from its 2019 oil demand forecast for the country.

How long would it take for oil to become obsolete if solar powered cars become the norm or if natural gas prices continue to trade at a significant discount to its oil energy-equivalent? The Saudis don’t want to take the chance to find out.

The U.S. has long-been called the “Saudi Arabia of coal.” It has enough to power the country for decades, some even say centuries. But new technology, tougher environmental regulation, and cheap natural gas has made coal practically worthless. Now the U.S. is sitting on a bunch of rock. Saudi Arabia fears high prices will make oil just as useless, so it will do whatever it takes, sell it at whatever the price, to make oil competitive. If that means oil staying at $40 a barrel, so be it.

This ^^^ is from a Fortune article and tackles some of the rationale for the over production that's going on.

http://fortune.com/2015/12/04/saudi-arabia-oil-prices-future/

soccerluvof4

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Re: What to do with Oil/Gas Stock?
« Reply #77 on: January 11, 2016, 04:46:18 PM »
I always believed to be a little overweight oil so own the VGENX despite having VTSAX etc.. its a very small position so not really worried about it but my cost basis is about 40% higher than here. Thinking about adding to it , has anyone else done so? just curious is all. Thanks

I've bought VGENX every month for the past year, and have decided to continue doing so.





Good to hear! Thats kinda how i feel about it.

aschmidt2930

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Re: What to do with Oil/Gas Stock?
« Reply #78 on: January 11, 2016, 09:13:24 PM »
If Union Pacific had viewed itself as a transportation company rather than a railroad company, we may all be flying UP rather than AA.  Why is this relevant?  If oil companies have learned from the past, they'll view themselves as energy companies and buy some major players in the renewable market very soon to transition their business for future growth.

Note: I own zero energy stocks at the moment that aren't purchased from an index, just feel the thought needs to be considered before holdings are dumped in an "end of oil" panic.

MustacheAndaHalf

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Re: What to do with Oil/Gas Stock?
« Reply #79 on: January 11, 2016, 10:44:02 PM »
For those holding a losing stock, you might want to read behavioral investing books.  The desire to avoid a loss can prevent you from chasing a more profitable opportunity.  With significant losses, consider selling the energy company stock to take a tax loss.  You could even sell Exxon and buy Vanguard Energy if you can't stand to switch your money elsewhere.

Most of the tax loss will be applied to long-term gains, but after exhausting those you'll cancel out short-term gains.  And overflowing all that, you can deduct up to $3000 from your income each year until you use up the loss.

Retire-Canada

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Re: What to do with Oil/Gas Stock?
« Reply #80 on: January 12, 2016, 07:05:17 AM »
Why is this relevant?  If oil companies have learned from the past, they'll view themselves as energy companies and buy some major players in the renewable market very soon to transition their business for future growth.

Yup. I made this point much earlier in this thread. Understanding specifically why you think your O/G stocks are going to be a successful investment is pretty important vs. just holding onto the old paradigm that oil is a commodity and commodities are cyclical so it will go back up.

I own O/G stocks in my index funds so I do have a horse in the game.

If these companies can successfully transition to renewables and green tech that would be a great solution for their fossil fuel risk.

ForrestNinja

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Re: What to do with Oil/Gas Stock?
« Reply #81 on: January 12, 2016, 07:40:55 AM »
You folks who think oil is done are crazy.  World demand is still growing but OPEC oversupply is outpacing it right now.  Do you think OPEC wants to make profit from $30/bbl or $100/bbl?  China just saw an 18+% increase in car sales in Dec.  How do you think all those electric car components are made or where they come from.  Oil is in everything and won't disappear that quickly.  Buffet just bought another 760k shares in Phillips 66.

Keep buying the S&P 500 while it's still high and I'll keep buying VGENX, saving cash (or pay down mortgage or save for a RE buyer's market) until S&P 500 is ready to be bought again.  Yeah, over 30-40 years turning a blind eye you may be ok but anyone who makes decent money from the stock market buys low and sells high.  Everyone is selling oil right now, it's too late to sell now.  It's time to start buying. 

I just made my first purchase of VGENX below $40 and will keep buying to the bottom.  I'm in for the long haul for energy and no way I would put into VFINX right now over VGENX. 

Oh look! Here's an article on why the S&P 500 is poor for long term investment.  See, you can find an article for anything! 

http://www.marketwatch.com/story/the-sp-500-index-is-not-your-buddy-2015-01-14
« Last Edit: January 12, 2016, 08:08:06 AM by ForrestNinja »

RichMoose

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Re: What to do with Oil/Gas Stock?
« Reply #82 on: January 12, 2016, 09:59:19 AM »
Before people jump "all-in" on energy, remember that oil companies could suffer for a long time yet. Bankruptcies have barely begun and a lot of smaller companies are still partially hedged in for 2016. It is likely that they will survive through 2016, but the real pain could begin towards the end of this year and into the beginning of 2017. Realistically if OPEC held prices down in the $40 range for another year a lot of US, Canadian, North Sea, and other offshore producers will be literally falling apart. This is a very distinct possibility, many of OPECs healthier producers (think SA, Kuwait, UAE, Qatar, and Algeria) have the cash, motive, and ability to hold prices down until around 2018. A few tricks such as currency devaluation could extend this.

I'm not an oil bear and I don't believe we are on the cusp of a new oil-free or even reduced oil economy. At this point the numbers just don't add up for alternative energy. However, it is dangerous to go all in on a sector when there is no forseeable change in the economics for that sector. I would hate to see you guys be like the poor fellows that grabbed the Mining Sector falling knife over the past few years. VGPMX is down 22% per year for the last 5 years. For a breakdown that's 25% in 2011, 18% in 2012, almost 35% in 2013, over 10% in 2014, and finally another 30% in 2015.

TheOldestYoungMan

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Re: What to do with Oil/Gas Stock?
« Reply #83 on: January 12, 2016, 10:44:48 AM »
Well, also, even if we never burned another fossil fuel for energy again we still need chemicals to make whatever we are doing work.

Exciting time to be alive!

MustacheAndaHalf

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Re: What to do with Oil/Gas Stock?
« Reply #84 on: January 12, 2016, 06:56:58 PM »
Forrest Ninja - Keep in mind market timing consists of two things: timing the purchase, and timing the sale.  How will you know when to sell?

Shouldn't China's car sales for 1 month be set against annual purchasing?  +18% for December sounds impressive, but that's only +1.5% more cars on 12-month scale.  An economic slowdown will certainly overwhelm that - people will buy the cars, but use them less.

But you should be comforted by having both Warren Buffet (beat S&P 500 for decades) and George Soros (hedge fund "broke the bank of England") buying energy companies last year.

Runge

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Re: What to do with Oil/Gas Stock?
« Reply #85 on: January 14, 2016, 08:07:52 AM »
For me? I'm not buying any special oil and gas company stock or ETF, or anything related to O&G unless it's already in VTSAX. Why? Because I work in O&G and am already pretty dependent on this sector.

Sticking to my fully diversified AA and hoping I don't lose my job.

HonestBanker

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Re: What to do with Oil/Gas Stock?
« Reply #86 on: January 15, 2016, 07:40:15 AM »
OP is this account one of many accounts in an already balanced portfolio, or is this account the only investment account in your portfolio?

If this is just another account in an already balanced portfolio than I would suggest ignoring the noise and holding.  Obviously you don't want to sell at a low point.  The whole point of a balanced portfolio is to hold all the asset classes and ignore the noise.

If this is the only investment in your portfolio wouldn't it be prudent to re-balance now?.  Yes it would have been much better to do this when things were going smoothly but I still don't think having your entire portfolio in 1 gas/oil stock moving forward is appropriate either.  If we give the advice "hold onto those shares until you've made your money back" aren't we really saying "the best investment decision for you in the next 1-3 years is to hold entirely gas/oil shares?"  If the OP was seeking advice on how to invest a small inheritance of $20K we probably wouldn't suggest allocating 100% of this money to a single gas/oil company's shares for the next few years, then switching to a balanced portfolio after the oil/gas market makes a recovery.

Why does it matter how OP got to where they are now?

younggunner

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Re: What to do with Oil/Gas Stock?
« Reply #87 on: January 16, 2016, 01:09:08 PM »
Some other things to consider:

Most of the big players in the industry specifically in the WVU, OHIO, PA area.. Are not solely dependent on the price of oil..   A lot of these companies are also getting a lot of revenue from Natural gas given the area they are drilling and Fracking..    I can assure you.. Exxon, Rice, Range Resources, Chesapeake, Marathon,etc.,  although may or may not have good valuations, are also getting revenue from natural gas as well with there WV, OHIO, PA work..

Some companies for awhile.. Would have a contract signed when oil was 80 a barrel, so even when oil was trading at 35 a barrel, they were still getting top $ for what they were producing.

Additionally, these companies know what they are doing.   Depending on there land leases, they know what areas and wells are going to produce and roughly how much so IF they aren't able to get a high price for the oil or natural gas, they can leave the wells sit and frack it later, or leave the well plugged until they want to produce it..  They can also store it and sit on it until prices rebound.    All in the mean time, the big producers beat the service companies up.  With all the service companies fighting for what work is left, work that might have cost 5k before, is now 2k.. So the producers will have a lot of cost cutting and once the price does come back, they will make a killing when they are ready to sell.

frugalGreg

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Re: What to do with Oil/Gas Stock?
« Reply #88 on: January 16, 2016, 05:09:18 PM »
Not looking to get into a flamewar, but the simple case for the "oil bull" side of the argument is that current prices are unsustainable for the industry.

In North America, while producers are still *pumping*, drilling has been at a virtual standstill for the better part of the last year.  Oil services companies have had to lay off major portions of their skilled workforce, and rigs are being decommissioned and auctioned off as smaller services companies fold.  Especially in shale plays, but across the board the existing producing wells are depleting, and their production will begin to rapidly taper over the next 1-2 years.  With little to no drilling currently happening and limited additional production coming onstream, coupled with the damage being done to the services industry means that when demand to being increasingly supply heats up, there will be a significant delay before actual new production comes online.

Elsewhere OPEC countries including Saudi Arabia themselves are suffering extreme damage to their fiscal/economic shape - these are countries where oil revenue represents the large majority of government revenue (often times with little to no incoming tax revenue), and where governments represent major, if not massive, sources of employment within the countries.  While larger OPEC countries have significant "war chests" to ride out this kind of situation, small countries do not -- even the larger countries are being pressured (ex. recent discussion of Saudi potentially selling off Aramco is a great example).  The pressure on OPEC to stop this game of chicken will continue to rise.

While there is indisputably currently a supply/demand imbalance, it isn't actually all that significant -- either a meaningful decline in North American production *OR* a moderate reduction in OPEC production would quickly bring the imbalance into check, if not cause the opposite effect, potentially going so far as to trigger an oil shock.

Again, not necessarily stating a personal belief/opinion, but rather responding to your ask for a counterargument : )

Last Night

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Re: What to do with Oil/Gas Stock?
« Reply #89 on: January 16, 2016, 08:03:32 PM »
For those of you in Canada, how would you structure a long play on oil at current prices and with the CAD so low?

Let's assume crude goes up, the CAD improves against the USD, if you were holding CAD now, how would you go long on oil if you believe it will rebound and you want to avoid buying USD to protect yourself from future FX losses.

Do you go long on Suncor and avoid the little guys of potential bankruptcy, do you go long on Canadian Crude oil Index (CCX)?
« Last Edit: January 16, 2016, 08:06:40 PM by Last Night »

RichMoose

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Re: What to do with Oil/Gas Stock?
« Reply #90 on: January 18, 2016, 11:30:08 AM »
For those of you in Canada, how would you structure a long play on oil at current prices and with the CAD so low?

Let's assume crude goes up, the CAD improves against the USD, if you were holding CAD now, how would you go long on oil if you believe it will rebound and you want to avoid buying USD to protect yourself from future FX losses.

Do you go long on Suncor and avoid the little guys of potential bankruptcy, do you go long on Canadian Crude oil Index (CCX)?

Depends on your account type but my eyes are on HXE or XEG. I prefer to invest in companies vs commodities because I don't understand a whole lot about commodity based ETFs that roll over futures contracts. What I do know is that they tend to under perform the commodity they track - sometimes substantially. Also, I don't know how long sub-$40 oil will last. But I do know that if it lasts for a while, poorly run companies will die and well-managed companies will thrive.

Jeremy E.

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Re: What to do with Oil/Gas Stock?
« Reply #91 on: January 18, 2016, 05:38:40 PM »
Holding individual funds or specific sector funds is market timing, which is consistently outperformed by the S&P 500. You are betting that energy will do better than the total stock market. Maybe energy will have 3 more bad years and lose 30% each year, meanwhile the total stock market gains 30% each of the next 3 years, who knows, you don’t.  Professionals constantly try and guess which stocks will do well in the future, they spend 40 hrs every week researching and they usually are outperformed by the S&P 500(individual people that try to pick stocks generally do even worse than the professionals).

Another Reader

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Re: What to do with Oil/Gas Stock?
« Reply #92 on: January 18, 2016, 06:33:32 PM »
Vanguard offers two types of products, two index products based on an energy index and two managed funds, managed by Wellington.

The index products are:

VENAX, $100,000 minimum, 0.10 expenses
VDE, the ETF version, 0.10 expenses

The managed funds are:

VGELX, $50,000 minimum, 0.31 expenses
VGENX, $3,000 minimum, 0.37 expenses.

I have been accumulating VDE, but I may put new money in the managed fund.  My guess is the Wellington folks are better than a blind index at sorting out the winners from the losers in this mess.

doggyfizzle

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Re: What to do with Oil/Gas Stock?
« Reply #93 on: January 21, 2016, 01:07:16 PM »
Some other things to consider:

Most of the big players in the industry specifically in the WVU, OHIO, PA area.. Are not solely dependent on the price of oil..   A lot of these companies are also getting a lot of revenue from Natural gas given the area they are drilling and Fracking..    I can assure you.. Exxon, Rice, Range Resources, Chesapeake, Marathon,etc.,  although may or may not have good valuations, are also getting revenue from natural gas as well with there WV, OHIO, PA work..

Most companies are not FCF positive on the natural gas that is being produced in the Marcellus and Utica plays with a Henry Hub price around $2 per MCF, which means they are extremely reliant on access to the debt markets to fund ongoing operations (which is starting to be a major problem for non-integrated E&P companies such as Range, Chesapeake, SandRidge, etc).  Revenue doesn't mean diddly sh*t unless the company is also able to derive positive cash flow from operations.

Stagleton

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Re: What to do with Oil/Gas Stock?
« Reply #94 on: January 21, 2016, 01:45:21 PM »
Start buying over the next 1-2 years.  High dividend, high quality equities that have little investment in shale (IMO)

TheOldestYoungMan

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Re: What to do with Oil/Gas Stock?
« Reply #95 on: January 21, 2016, 09:00:35 PM »
So I'm located down in Houston within a twenty minute drive of what seems like hundreds of refineries and chemical plants.  My rental units are getting slammed with applicants all looking to move to cheaper places and reduce costs.  Everybody still has a job, but they all just saw someone else get laid off or heard about sudden wage cuts etc.  "I work offshore repairing pipelines and so forth, heading out for a job tomorrow.  A lot of our contracts have disappeared but I'm not worried."  Conversation I had last night, fairly typical.

A coworker's wife works for a bank that lends heavily in the oil and gas sectors, they're having meetings multiple times a day to figure out how to not go bust as 60-90% of their loans just went past due.

I expect Houston will lose tens of thousands of jobs this year (some reports peg the 2015 losses at 35,000 from just direct O&G layoffs), hopefully not hundreds of thousands, but the wider implications are interesting, and really brings home the value of diversification.

If your region isn't sufficiently diversified, problems in one sector can rapidly spread to other areas.  Think about the restaurants, apartment complexes, retail stores, bars, banks about to lose customers.  Even if a bank didn't overly lend to O&G companies, it's unlikely they didn't lend to O&G employees or businesses that rely on O&G customers.

Within my area I'm expecting a recession if not an outright depression over the next two years as people adjust to the new normal, and the recently unemployed O&G workers give up and leave town.

The rule of thumb developed here from the 1980s collapse of oil was 4 other jobs for every 1 O&G job lost.  And I'm suspicious Houston is more dependent on O&G on the heels of the late 2000 recession.

But all of this is just an aside to note that the oil majors are all set up to shed workers in a hurry, the vast majority of their employees being contractors they can fire with virtually no residual negative effect on their balance sheets.

Twenty-seven dollars per barrel. *shakes head*

OneCoolCat

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Re: What to do with Oil/Gas Stock?
« Reply #96 on: January 21, 2016, 09:32:46 PM »
Reading through this post, the number of people insisting that oil would come roaring back reminded me of all the people in the early 2000s insisting that buying a house was a no-brainer because "real estate prices always go up". Not that this is the same scenario, but I do feel a strong herd mentality forming.

I bought some KMI when it was $42, based largely on the dividend. Flash forward less than a year and it is trading around $15 and has cut its dividend forecast. I am in a somewhat similar position to the OP, left wondering if I should cut my losses and accept my "education" or hold onto it, with the risk of an even further fall. It's in a 401K so no tax-loss harvesting.

If you bought a house in the early 2000's you would be doing pretty good.  Its the people who bought post 2005 that got burned.

therethere

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Re: What to do with Oil/Gas Stock?
« Reply #97 on: April 29, 2016, 08:41:28 AM »
Checking in again. I'm still waiting for a good time to rebalance this 401k account so its less volatile and not 100% on oil/gas stocks. Are there any websites or indices I can use to track when the XOM stock "catches up" to the overall sp500 index? The past few days seems to be working to close the gap (XOM going up and VTSAX going down).

earthshine

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Re: What to do with Oil/Gas Stock?
« Reply #98 on: April 29, 2016, 05:01:33 PM »
something such as this?

http://finance.yahoo.com/echarts?s=XOM+Interactive#{"range":"5y","allowChartStacking":true}

doggyfizzle

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Re: What to do with Oil/Gas Stock?
« Reply #99 on: April 29, 2016, 09:56:24 PM »
Yep, they could be but haven't yet.  BP is currently paying at just under 8%.  My bank is paying less than 0.5%. 


MMMMM Conoco? anadarko? Some of the largest E&Ps in the US.  BP's dividend is not being paid as a return on invested capital, but simply straight return of capital.  If you don't understand the difference, I'd suggest looking into it ASAP.  The company is not anywhere near FCF-positive, and the GOM penalties and absence of their equity stake in TNK-BP going forward will put downward pressure on earnings for years.