Buy Oil?

[strife]

So Oil is incredibly low right now... and odds are it's going to go back up.

I'm asking as an ignorant stock guy, so if something sounds stupid...

From my quick research, buying into the United states Oil fund is like buying into barrels of oil(although it doesn't seem to be a 1 to 1 comparison as Oil is like $65 right now and the stocks are right about $25.

To the ignorant stock guy, this seems like an easy win... why is that wrong?

[Grieve]

I agree it will probably go up again. But like the Russia thread, the tough part is figuring out when. Oil is at $66 right now. If it drops to $53 you're down 20%. It it drops to $33 you're down 50%. I read a lot of articles over the months saying the absolute floor would be $80, or $70, but we blew through both those.

In 2008 it fell from $144 to $37, before eventually getting back over $100, but six years later it's still never got even close to those 2008 highs.

I bet on Apple (with stock options) all the way down, thinking time and time again it couldn't go any lower, and that the drop didn't make any sense. And it didn't, which is clear from the fact it's been making almost daily new all-time highs for weeks. But it took a lot longer for the market to figure that out than it did for me to. My AAPL is up huge right now (and I have January options up 450%), but I also had a ton of options expire worthless earlier in the year...

[Crice]

I would give it a year before it goes down, and then buy since that is what I do for a living.

[Vanraw]

Seems to me that opec new strategy is to get prices to a point where shale and fracking cost to much.
I think circ is right. Wait a year.

On a side note, its great for the American economy...

[Crice]

Wait till $40-45 a barrel. The prices wars will continue and Russia is struggling with the prices of Oil dropping. I am still looking for deepwater drillers and other oil gas related candidates. Companies are still hiring. My current shares on taking a dive but I will pick some up when it slumps.

[strife]

I bought gas for 1.98 the other day. I can't imagine it getting much lower. Shale is getting some negative publicity for possibly causing earthquakes and hurting the environment. Whether that is true or not I don't know, but it could drive the price of oil up some, or at least stop the fall.

[strife]

So, I was over my parents talking to my dad and I asked him how his stock was doing because I know he's heavily invested in Exxon(retired after working there ~40 years), and he said it was doing okay, down a little(not sure what time frame he was using), but not too bad. I mentioned to him that I figured Exxon stock would be down a lot since the price of oil is so low and he brought to my attention something I never really thought about or was even aware of.

Exxon obviously buy oil... but they don't buy it at current market prices. They sign like a 30 year agreement with oil harvesters and pay that rate over the agreement. Since they do that, the oil price going up or down, doesn't really have much of an impact on their stock. So Oil may be $100 a barrel, but Exxon may only be paying $30 for it(no idea actual cost).

He also said that Exxon, buys the shit oil, so that price they advertise being the price of oil a barrel, isn't what Exxon uses. They use the trash oil and make gas out of it, and all of the trash it takes out of the oil, uses that for other stuff. Pretty interesting. He also mentioned that the good stuff(that is mentioned when they give the price of oil), Exxon isn't really set up to process.

[Jakensama]

Exxon obviously buy oil... but they don't buy it at current market prices. They sign like a 30 year agreement with oil harvesters and pay that rate over the agreement. Since they do that, the oil price going up or down, doesn't really have much of an impact on their stock. So Oil may be $100 a barrel, but Exxon may only be paying $30 for it(no idea actual cost).

Pretty much every commodity has a futures market - you can get hosed on it too if things significantly trend down, but the hope is you negotiated a rate that will work in your favor over time. A long term slump in oil prices could fuck a lot of their futures though depending on when thye were purchased.

Shipping contracts being done like this helped exacerbate the recession in our industry (and by proxy everyone else) as a bunch of people agreed to vessel rental rates years in advance and ended up getting massively hosed once a glut of new vessels came onto the market.

[Zirak]

Driving down to the coast between Christmas and New Year I saw gas as low as 1.90 and someone at church last night said that while they were off somewhere on vacation, I don't recall where, that they saw it for 1.75.

[Jakensama]

I still remember 89 cents a gallon in high school.. Nothing like filling up a civic for under $10...

/getting old

[Vllad]

I own oil stock and I haven't seen it go up or go down in 3 years. No splits and nothing else worth mentioning.

[TinStar]

I still remember 89 cents a gallon in high school.. Nothing like filling up a civic for under $10...

/getting old

I remember that too. Crazytown. But what's even crazier is we aren't that old.

[Airyth]

I remember $.59 a gallon for the cheap gas when i was in high school, that was amazing... I use to have money to drive to amusement parks and skiing and gas prices were of no concern

[bonestomper]

I have been a series 7 broker for over 25 years. Never fucked with oil, never had to. It is starting to become a topic.

The first problem with buying into "Oil" is exactly what Strife was saying, oil dropped by over 50% but Exxon didn't. So if you expect oil to increase by x%, you can't really expect Exxon to increase by the same percentage.

That is the same problem with all of the "Energy" mutual funds. They own the stock in the companies that didn't fall 50% and won't go up 50%.

But the average person can't just buy oil and store it in great big tanks and sell it at a later date when the prices are higher. It really isn't like gold where you can put it under the bed or where ever.

So what you are left with is really the futures market or some derivative of that. The easiest thing that allows the individual investor to speculate in the futures market with at least some kind of management or stated investment strategy is an ETF Exchange Traded Fund. And an ETF is such a wide open term I can't even quantify it. They are pretty well allowed to do anything.

I won't even try to explain "Contango" but it is something that you have to consider if you are looking at rolling the futures market. <!-- m --><a class="postlink" href="http://www.investopedia.com/terms/c/contango.asp">http://www.investopedia.com/terms/c/contango.asp</a><!-- m -->

There is another interesting thing about ETFs, they can be leveraged. <!-- m --><a class="postlink" href="http://www.investopedia.com/terms/l/leveraged-etf.asp">http://www.investopedia.com/terms/l/leveraged-etf.asp</a><!-- m --> So when the the underlying asset goes up they go up greater, and when it goes down they go down greater.

At some point, I have some clients that want to buy into oil. Where is the bottom? Hell if I know.

But I am a value oriented broker. I love shit that is beaten down but not going out. I don't expect oil to go out. The history says every time oil has dropped 50%, in the next couple years you make a rather large profit.

The EFT that I am looking at for future investments is ProShares Ultra Bloomberg Crude Oil (UCO). it is leveraged 2x. over the last year the high was $40.17 and the low was $7.97. it finished Friday at $8.36. The reason is because I don't really know if oil is actually headed back over 100. It might settle well below that and if it does I still want to maximize profit.

In my mind at the end of the day it isn't an investment, it is a bet. Might be a good bet, but a bet none the less. Do your own research and ask for professional advice.

[Vanraw]

Hot off the press, oil sank again today.
<!-- m --><a class="postlink" href="http://mobile.reuters.com/article/idUSKBN0KL03Y20150112?irpc=932">http://mobile.reuters.com/article/idUSK ... 2?irpc=932</a><!-- m -->
The below comments are interesting, and core to the subject. Bottom line is the world is producing way more oil then it needs., and no one seems to be turnng down the spiket. What they are hoping for, is everyone starts buying / using more because its so cheap.... But the reduction of usage has alot to do with effcient standards and green energy.

figured we’d see $40 in the near term, but everything seems to be happening quicker than expected,” Zahir said..”........


......"There's a million barrels a day of excess production," he said. "That is what is driving the price."

[Zirak]

The reduction of usage also had a lot to do with price. For example, my family has done a lot less driving over the last 6 years simply because gas was so expensive. With gas prices falling we are starting to be a bit more free again with hopping in the car to go somewhere. I doubt seriously that we are the only ones.

[Vanraw]

The reduction of usage also had a lot to do with price. For example, my family has done a lot less driving over the last 6 years simply because gas was so expensive. With gas prices falling we are starting to be a bit more free again with hopping in the car to go somewhere. I doubt seriously that we are the only ones.

You are the example of who they are hoping to buy more. I agree with you, there are alot more out there. however alot of people have also bought smaller cars, hybrids, electric, etc, as a result of the high prices. I think we will see a bump in usage, but my gut says it will be less than previous levels because of more effcient cars and such.

The big question is what is the bottom.... Bone has the right answer.

At some point, I have some clients that want to buy into oil. Where is the bottom? Hell if I know.

[Breand]

I don't think we are at the bottom, but I do think we are already at a place where if you buy and hold long term, you will make a profit. Oil isn't a company that doesn't have a growth horizon, eventually it has to come back up.

[Vanraw]

Yes I agree. It will rise either by consumption or by lowering production. Unless of course we enter some great recession again.

A couple of interesting things to look out for though. Keystone pipeline will increase production. Also at some point Russia is going to pull its head out of its ass, and play nice with the world. At which point you will see a production increase and anotyher drop in price. Russia is hurtng right now, and most of thier economy is based on oil. The sanctions are have a huge impact. Once lifted they will flood the network with oil. count on it..

[bonestomper]

I don't think we are at the bottom, but I do think we are already at a place where if you buy and hold long term, you will make a profit. Oil isn't a company that doesn't have a growth horizon, eventually it has to come back up.

OK, great idea. What vehicle do you recommend for that?

[Breand]

I don't think we are at the bottom, but I do think we are already at a place where if you buy and hold long term, you will make a profit. Oil isn't a company that doesn't have a growth horizon, eventually it has to come back up.

OK, great idea. What vehicle do you recommend for that?

Depends on the risk you want to assume, of course. The one you mentioned is fine, or you could go even riskier and do ERX which is a triple leveraged ETF. But I would certainly stick with ETFs and not the oil companies. If I were a real betting man I'd gobble up some LEAPs (2 year term options) on an oil ETF and you'll have 2 years to sit on it and sell when you want.

I have also really liked PGH(Canadian Oil trust) for years because they give out a monthly dividend. It basically covered Netflix and Amazon Prime for the past 6 years, heh. It is very low right now, and the dividend is down to 4 cents a share (monthly) so a risk, but could be a good pickup.

[Slamz]

My experience with leveraged silver ETFs suggests:
1) They are very risky. They seem to pretty consistently follow commodity prices DOWN but not necessarily UP. Reading suggests that they reflect price changes that occur during regular trading hours but not changes that occur outside of hours. e.g., if silver closes at 30 and opens at 35, this change won't be reflected in the leveraged ETF.

2) They lose value if you hold them long term, probably for the above reason. You should really be day trading them and trying to anticipate the daily moves, i.e., you are a wizard or a time traveler.

The NON-leveraged silver ETF seems to much more closely match the price of silver (ditto for gold). It's the leveraged one that's fubar.

I dunno if oil is the same though.

[Jakensama]

You are the example of who they are hoping to buy more. I agree with you, there are alot more out there. however alot of people have also bought smaller cars, hybrids, electric, etc, as a result of the high prices. I think we will see a bump in usage, but my gut says it will be less than previous levels because of more effcient cars and such.

There has also been more of a trend to pull our heads out of the assess and start living closer to things rather than do the ridiculous commutes we are used to too. Not sure if it is widespread enough to counteract driving culture though.

One would hope we learned a lesson from high gas prices, but we didn't do it in the 70s so I can't imagine we wont see a bump again. But with mitigating factors and increasing production all around, the effect might be muted from an investment standpoint.

Additionally, while oil WILL go up eventually barring some mystical unicorn fart energy source just appearing tomorrow - investing on that alone might not be the best choice. While your money is sitting there waiting for oil to go back up significantly in 2, 3, 5 or 10 years, it could have been working for you and paying off better returns elsewhere.

If I did it I'd probably do an ERX and roll the dice, gamblings not fun without a higher risk/reward ratio.

[Grieve]

I don't think we are at the bottom, but I do think we are already at a place where if you buy and hold long term, you will make a profit. Oil isn't a company that doesn't have a growth horizon, eventually it has to come back up.

OK, great idea. What vehicle do you recommend for that?

I don't have any free cash right now (sticking it out in AAPL to see how earnings go), but if I did I'd go with the producers, like EOG or CLR, rather than USO. Or something like CVX, which has a nice yield. They will likely outperform when it starts going up again.

But oil might stay in the 40s (or lower) for the rest of this year...

[Jakensama]

You should probably dump apple before the watch flops this year..