Peak Oil is You
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Page added on August 5, 2015
The Oil Low Is Coming So Prepare To Buy Cheap
The market doesn’t like slumping stocks. Shares that fall become unpopular with investors who bailed at a loss and holders hoping for the day when the price will return to the level they bought in at, so they can sell without taking a hit. Investors and traders are normally sore losers, so once a stock or commodity has hurt enough players the reputation can keep them cheap.
The industry doesn’t like fallers either, because it is easier to sell winners than losers and the ‘sell side’ is at least half the picture on Wall Street.
However, a large slice of the profits from equities, or for that matter any investment, comes from buying cheap and selling expensive. Buy low, sell high.
The trick is to spot low.
There is a massive low on the horizon and all investors should watch out for it. That opportunity is the coming low in oil. That point might not be next week but it is getting closer by the day.
Unless some new technology takes hydrocarbons out of the picture as dirt cheap energy, oil is always going to be a massively important commodity. There are roughly seven barrels in a ton, so as of today oil is about $330 a ton. That’s about as cheap as commodities get, equivalent to sugar.
Energy is life, which makes oil a proxy for the global population itself, but unlike sugar there isn’t any more being made.
Oil has plummeted and right now is in another slump. My recent article predicting a major move in oil has come to pass and this slump will see oil at levels which will be lows.
We are in the crash phase of oil, but oil will recover; it’s simply a question of when rather than if.
Timing the market is very difficult but oil will not go to zero, it simply costs too much to fund. Low prices must be temporary unless cheaper alternatives are found and as yet they haven’t.
The bottom of the oil slump will be a tremendous place to enter the market to load up on oil companies. Firms like Chevron CVX -1.38%, Exxon, Statoil , Shell and BP are pillars of the world economy and investors will get an opportunity to buy them up at rock bottom prices.
It is not the gambler’s way to buy oil stocks at the low of oil, but those who want to trade oil always have plenty of opportunity to trade volatility. For investors the big opportunity come now and again.
It’s far better to buy oil stocks paying mighty dividends than play Russian roulette with oil itself, because buying big producing oil companies when they are down on their luck is a historic opportunity to lock in fat dividend yields later and solid capital gains. Of the companies mentioned above, BP currently has the highest yield at 6.6%. Statoil has a yield of 5.5%, Royal Dutch Shell has a yield of 4.7% and Exxon has a yield of 3.7%.
An investor would think they were spoiled for choice when hunting for oil stocks that already look cheap. However, cheap can and likely will get cheaper.
“Don’t catch a falling knife,” is basic investing law and while it is probably only marginally true, safe is better than sorry. The way to catch falling knives properly is to let them stick in the floor first. V shape bottoms on charts are quite rare and unless something massive happens like a war, oil is not going to whip around and shoot up. Instead chances are it will languish for months, perhaps years. Once the initial drop has turned into lethargy, that will be the time to buy.
It’s always a risk to be too early but it’s better to be in a little early and have to wait, than miss a recovery by taking your eye off the ball.
This is the set up:
Once oil settles it will be a good time to start slipping into oil stocks. Like supertankers the situation will not reverse overnight, but there is never a wrong time to buy cheap shares or a wrong to time sell expensive ones, so as long as an investor doesn’t buy too aggressively they will end up with a position with a low average cost.
Unless the world falls into some kind of new depression, low oil prices will spur a new boom and with that boom demand for oil will soar and when it does so will the price of oil. Does anyone disagree?
“When” and “if” are the two key questions in investing and when the ‘if’ is removed the investor is on solid ground.
While it is hard to time the market, the investor in cheap oil stocks will be able to console themselves with solid dividends. It is not so bad to get paid to wait for the inevitable.
10 Comments on "The Oil Low Is Coming So Prepare To Buy Cheap"
Davy on Wed, 5th Aug 2015 7:19 pm
I feel nauseous when I read an article by Forbes.
Nony on Wed, 5th Aug 2015 7:27 pm
This is a moronic article. Catch a falling knife is just as stupid as “momentum stocks”. If you think something is underpriced, buy it now. You’re actually positing a second order of being smarter than the market (violating EMH) if you can not only second guess when it is mis-valued but ALSO when it turns.
If you think oil is underpriced buy the commodity or one of the ETF commodity funds. BP, Shell, and Exxon are all integrated so if you buy them you’re buying refining also (not just oil). In addition, they all have significant NG exposure. If you want oil, buy oil.
i1 on Wed, 5th Aug 2015 7:41 pm
Yeah, buy oil futures. I’ll buy physical silver instead.
Davy on Wed, 5th Aug 2015 8:22 pm
i1, I agree, buy physical or don’t buy at all.
HARM on Wed, 5th Aug 2015 8:32 pm
The price for crude oil may be nearing a cyclic bottom (hard to tell), but that does NOT mean oil stocks are “cheap” right now. Thanks to the Fed’s endless quantitative easing & ZIRP, the S&P 500 has an average PE ratio of 20:1. Oil & gas stocks/ETFs are not vastly better.
If we have that long awaited “correction” in the stock market, then perhaps they’ll be a decent buy.
BC on Wed, 5th Aug 2015 8:59 pm
I have a technical target range for WTI at $32-$39, but the Juglar cycle for WTI in CPI and US$ terms has turned negative as occurred in 1986 and the early 1960s, and the Kuznets cycle is following behind.
The implication for the price of WTI is for, well, I won’t say so as to avoid appearing like idiot; but we could see price, asset, and wage deflation along the way into decade’s end to as late as the early to mid-2020s, along with 1% 10-year Treasury and 2% or lower 30-year yield.
http://www.thehillsgroup.org/depletion2_022.htm
Consult shortonoil for a target at the link above, which is not too far off what I expect for the remainder of the Long Wave debt-deflationary regime coinciding with Peak Oil, population overshoot, resource depletion per capita, and the risk of a debt-deflationary implosion along the way.
https://www.youtube.com/watch?v=UvoyWlnvVxw
Have mercy!!!
MrNoItAll on Thu, 6th Aug 2015 1:49 am
“Does anyone disagree?”
Yes. I emphatically disagree that “low” oil prices will spur a new boom. “Low” oil prices (currently under $45 per barrel) is a major money-loser for shale, which has been the ONLY significant growth in oil production since conventional oil peaked. Those “low” $45-per-barrel prices can’t possibly spur a new boom. What a crock of shit.
Like I’ve said several times before, there isn’t going to be another BOOM. There are no more significant “easy to get” economically viable oil fields left waiting to be discovered. Rockman and his cohorts have scanned every square inch of planet earth with advanced technology and the sad (or happy) fact is that there just isn’t very much oil left worth extracting, certainly not enough to create another BOOM.
The oil industry is in a BUST right now. The LAST bust. There will be no more booms. Embrace the horror. Learn to live with less, a lot less.
Unless the world falls into some kind of new depression, low oil prices will spur a new boom and with that boom demand for oil will soar and when it does so will the price of oil.
paulo1 on Thu, 6th Aug 2015 7:19 am
The oil price decline is more a reflection of how shitty things are, not an indicator of future growth.
The only thing I really understood about this article is knowing how many Forbes reader shite bites will lose money ‘buying the dip’.
Nony on Fri, 7th Aug 2015 8:43 am
Brent dipped below 49. WTI is in the lower 44s.
Yeah, Rock…I’m sure you are going to tell me it isn’t $30. [And I don’t think it will go to that.] But it is way way WAY down from $100. That is a lot of gas money that can be spent on beer instead. That is Rock’s “POD” and Hamilton’s “scarcity premium” taking a big haircut.
Oil volume is UP and price is DOWN. Being a peaker, even a squishy lite peaker, just got a bunch harder.
Oh…and nat gas…that has just been a wasteland for people like J David Hughes who predicted peakin 2006 and 1.5 bcpd/year drops from then on!
BobInget on Fri, 7th Aug 2015 9:17 am
It’s Friday. Oil often makes tepid recoveries
for two days with no trading. Anything can happen over the week-end.
I would like to start a Friday “The Atrocity Report” here on PO.com . Feel free to
comment or add your own news of organized inhumane behavior resulting from our quest for oil and accompanying power.
The following story could well be propaganda as no video accompanies.
“ISIS (has) executed 19 women in the city of Mosul during the past two days,” he told Iraqi News on Monday. “The penalty decision came on the background of the refusal to participate in the practice of sexual jihad.”
Mimousini’s claims come just days after a UN official said she had witnessed the circulation of a child slave “price list” among Isis fighters in Syria and Iraq.
Zainab Bangura, the UN’s Special Representative of the Secretary-General for Sexual Violence in Conflict, told Bloomberg that girls get “peddled like barrels of petrol”, and are sometimes bought so they can be sold to their families for thousands of dollars in ransom money.
Meanwhile on Thursday, ISIS was reported to have seized a key town in central Syria following a period of heavy skirmishes with government forces.
READ ALSO: ISIS ‘price list’ for child slaves confirmed as genuine by UN official Zainab Bangura
The densely populated town of Qaryatain represents the most significant strategic gain for the militant group since it took the historic city of Palmyra, not far to the northeast.
Lying 85km (50 miles) from Homs, it gives ISIS a clear route to link up areas it controls in and around Palmyra with the eastern countryside of Qalamoun in Damascus province, Associated Press reported.
READ ALSO: ISIS justifies enslaving, having sex with non-believers
News that Qaryatain had fallen came from the UK-based Syrian Observatory for Human Rights, which said the group took the town after three suicide bombers hit army checkpoints at the entrance the day before.
Isis supporters online appeared to corroborate the fact Qaryatain had been taken, while a Facebook page which regularly posts news on Isis military activities posted photos claiming to show fighters and a captured tank “liberating” its streets.
The advance came after a string of military setbacks for Isis that followed its victory in Palmyra. In June, Kurdish fighters and their local allies expelled the group from the key northern border town of Tal Abyad, cutting off one of its major supply routes.
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