Buying OIL to protect wealth

rockstar82
By rockstar82 on Wed, Jan 22, 2014 - 12:06pm

With the stuff running out, is it a good idea to buy oil (I was thinking ETF's that trade in futures) with an eye on the inevitable price increases? Am I missing something? I read somewhere that because of peak oil the demand for it will be destroyed once the price goes above a certain point... what to do?

 

 

10 Comments

rockstar82's picture
rockstar82
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Joined: Jan 18 2014
Posts: 6
No thoughts?

Any thoughts about this subject?

KennethPollinger's picture
KennethPollinger
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Posts: 653
I agree

and have been thinking the same.  But, just like junior gold mines, how know what to buy or even when.

Hope there are some brilliant minds in this community willing to share expertise.

Oliveoilguy's picture
Oliveoilguy
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Posts: 578
XOM is safe

Just bought some XOM last week on the latest dip. I agree with Kenneth that Juniors are risky, so my strategy going forward is that when investing in a sector, also secure a dividend, and own a company that is too big to fail. I agree that oil is a good play going forward. 

Jim H's picture
Jim H
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Joined: Jun 8 2009
Posts: 2379
Buying Oil

One type of oil-based investment vehicle that I have commented on here before are the Sandridge oil well trusts PER, SDT, and SDR.  With these trusts you are buying a slice of the future oil revenues from groups of mostly fracked wells, and if you take a look at the stat's for these, you will see some pretty outrageous dividend rates;

PER = 19% div

SDT = 20.7 % div

SDR = 21.6 % div

What I have noted in the past is that you can't fool the market when it comes to the relatively short lifetimes of these fracked wells... the (relative) dividends have gone so high because the share prices have compressed, based on the rate of fall-off in oil volumes.  That being said, if we get into a period of significant inflation, and oil goes up rapidly, this may be one pure play on oil that could turn out to be a really nice total return investment if there were to be a period ahead where both the share price, and the dollar value of the dividend, were to increase concurrently.  Please do your own due diligence.           

KennethPollinger's picture
KennethPollinger
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Joined: Sep 22 2010
Posts: 653
Sharing about MINERS

For some time I have been asking for help in deciding which miners to buy and which oil stocks to invest in.  A little here and there but nothing really substantial.

So, for a change I'd like to share some of my good (lucky) fortune with you folks.

Here is what has happened to me over the last month or two when many thought the miners had hit bottom or at least were close to it.  So, enjoy, and pass on similar nuggets of metals, or oil, please:

 

                            Symbol        Last      Cost        Total       

                                                                           Change
 
                                ABX       20.34     19.28      4.82%
                                AG         12.19       9.37     29.82
                                EXK         5.60        3.35    66.17
                                GG         27.55      24.50   12.22
                                     
                                HMY         3.19        2.46    29.15
                                MGPHF      .615        .49    24.91 (graphite)
                                MUX          3.07        2.33   31.20
                                NEM         23.83      33.02 -27.90 (only ONE loss)
                                OSKFF       6.32         6.08    1.49
                                PAAS        14.24       11.60  22.55
                                SA                9.42         8.21  13.95
                                SSRI          10.33         6.62  55.55
                                TGD             1.59         1.38  14.39
hydrodog's picture
hydrodog
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Posts: 22
January of 2014 .. Is it time to buy the oils?

Oil prices have been hammered .... Oil at about 49/ barrel.... IS This Time To Buy in ???   I'm sticking mostly with the majors but will try a smaller good company with dividend and not too much debt.... both foreign and domestic....

Have kept my TOT

Just bought Chevron

Looking at EXXon and Petrobras

I feel the dividend is an important component.  

If time is on your side .... I can't see this oil price staying low.  To me it should be a way to increase your wealth without lots of risk.    Been hurt bad with stocks in the past ..... so it a little at a time ....   Next buy in will be on a dip to 46 dollars a barrel.    Hate to buy a lot to early .... the stock market as a whole looks to be near a top.  

Any comments or other ideas .....

hydrodog's picture
hydrodog
Status: Member (Offline)
Joined: Apr 14 2008
Posts: 22
Still hurting with my oil stock buy....

But the dividends have mittagated  the loss...  Am hurt but not too bad....   Few people follow thru on what has worked or has not worked. 

Edwardelinski's picture
Edwardelinski
Status: Gold Member (Offline)
Joined: Dec 23 2012
Posts: 309
Hydrodog

You may have to rethink strategy.What was once unthinkable is now reality.The price per barrel of oil a year ago was in the neighborhood of a 100 dollars,today it is half that.Oil producing nations based future economic projections on the 100 dollar price point.Today they are paying dearly for those flawed projections.The IMF among others have figured that countries like Saudi Arabia will burn thru excess cash reserves within five years.That is a nice way of saying they will be broke.This week the US announced they will be dumping our strategic oil reserves into the global market place to make up for budget shortfalls.Economies of the world are collapsing every day.This morning marathon oil reported and they will be cutting the dividend 76%.Privately held Conoco Phillips out of Houston will be cutting capital expenditures in the neighborhood of 8 billion.Shell oil reported,staggering losses.They are early in the game.With little demand from industrial nations like China it doesn't look like it will reverse course anytime soon.Good luck.

Edwardelinski's picture
Edwardelinski
Status: Gold Member (Offline)
Joined: Dec 23 2012
Posts: 309
Hydrodog

You may have to rethink strategy.What was once unthinkable is now reality.The price per barrel of oil a year ago was in the neighborhood of a 100 dollars,today it is half that.Oil producing nations based future economic projections on the 100 dollar price point.Today they are paying dearly for those flawed projections.The IMF among others have figured that countries like Saudi Arabia will burn thru excess cash reserves within five years.That is a nice way of saying they will be broke.This week the US announced they will be dumping our strategic oil reserves into the global market place to make up for budget shortfalls.Economies of the world are collapsing every day.This morning marathon oil reported and they will be cutting the dividend 76%.Privately held Conoco Phillips out of Houston will be cutting capital expenditures in the neighborhood of 8 billion.Shell oil reported,staggering losses.They are early in the game.With little demand from industrial nations like China it doesn't look like it will reverse course anytime soon.Good luck.

Uncletommy's picture
Uncletommy
Status: Gold Member (Offline)
Joined: May 3 2014
Posts: 475
In answer to oil investment

My thoughts on why I invest in energy. This is from Nate Hagens of the oil drum. Why is the price of oil down. Maybe this is part of the answer. My portfolio has dropped over 60% in value(not that its that big). It has generated over $5000 in dividends over the last year. The beauty of energy slaves is that you don't have to feed them.

11. Energy measured in energy terms is the cost of capital

The cost of finite natural resources measured in energy terms is our real cost of capital. In the short and intermediate run, dollars function as energy, as we can use them to contract and pay for anything we want, including energy and energy production. They SEEM like the limiters. But in the long run, accelerating credit creation obscures the engine of the whole enterprise - the ‘burning of the energy’. Credit cannot create energy, but it does allow continued energy extraction and much (needed) higher prices than were credit unavailable. At some point in the past 40 years we crossed a threshold of 'not enough money' in the system to 'not enough cheap energy' in the system, which in turn necessitated even more money. After this point, new credit increasingly added gross energy masking declines in our true cost of capital (net energy/EROI). Though its hard to imagine, if society had disallowed debt circa 1975 (e.g. required banks to have 100% Tier 2 capital and reserves) OR if we had some natural resource tether – like gold – to our money supply since then, global oil production and GDP would likely have peaked 20-30 years ago (and we’d have a lot more of the sub 50$ tranche left). As such, focus on oil and gas production numbers isn't too helpful without incorporating credit forecasts and integrating affordability for societies at different price tranches.

An example might make this clearer: imagine 3,000 helicopters each dropped a billion dollars of cash in different communities across the country (that’s $3 Trillion ). Citizens that get there first would stuff their backpacks and become millionaires overnight, lots of others would have significant spending money, a larger number would get a few random hundreds stuck in fences, or cracks, and a large % of the population, not near the dropzone, would get nothing. The net effect of this would be to drive up energy use as the new rich would buy cars and take trips and generally consume more. EROI of the nations oil fields wouldn’t change, but oil companies would get a higher price for the now harder to find oil because the economy would be stronger, despite the fact that those $3 trillion came from thin air (or next to it). So, debt went up, GDP went up, oil prices went up, EROI stayed the same, a few people got richer, and a large % of people got little to nothing. This is pretty much what is happening today in the developed world.

Natural systems can perhaps grow 2-3% per year (standing forests in USA increase their volume by 2.6% per year). This can be increased via technology, extraction of principle (fossil carbon), debt, or some combination. If via technology, we are accessing energy we might not have been able to access in the future. If we use debt, we are diverting energy that would have been accessible in the future to today by increasing its affordability via handouts/guarantees and increasing the price that energy producers receive for it. In this fashion debt functions similarly to technology in oil extraction. Neither one is 'bad', but both favor immediate consumption on an assumption they will be repeated in continued iterations in the future.

Debt temporarily makes gross energy feel like net energy as a larger amount of energy is burned despite higher prices, lower wages and profits. Gross energy also adds to GDP, as the $80+ per barrel oil extraction costs in e.g. Bakken Shale ends up being spent in Williston and surrounding areas (this would be a different case if the oil were produced in Canada, or Saudi Arabia). But over time, as debt increases gross energy and net energy stays constant or declines, a larger % of our economy becomes involved in the energy sector. Already we have college graduates trained in biology, or accounting, or hotel management, working on oil rigs. In the future, important processes and parts of non-energy infrastructure will become too expensive to continue. Even more concerning is that, faced with higher costs, energy companies increasingly follow the societal trend towards using debt to pull production forward in time (e.g. Chesapeake, Statoil). In this environment, we can expect total capital expenditure to keep pace with total revenue every year, and net cash flow become negative as debt rises.

In the last 10 years the global credit market has grown at 12% per year allowing GDP growth of only 3.5% and increasing global crude oil production less than 1% annually. We're so used to running on various treadmills that the landscape doesn't look all too scary. But since 2008, despite energies fundamental role in economic growth, it is access to credit that is supporting our economies, in a surreal, permanent, Faustian bargain sort of way. As long as interest rates (govt borrowing costs) are low and market participants accept it, this can go on for quite a long time, all the while burning through the next tranche of extractable fuel and getting reduced benefits from the "Trade" creating other societal pressures.

Society runs on energy, but society thinks it runs on money. In such a scenario, there will be some paradoxical results from the end of cheap (to consumers) oil. Instead of higher prices, the global economy will first not have the juice to continue to service both the principal and the interest on newly created money, and we will probably first face deflation. Under this scenario, the casualty will not be higher and higher prices to consumers that most in peak oil community expect, but rather the high and medium cost producers gradually going out of business due to market prices significantly below extraction costs. Peak oil will then come about from the high cost tranches of production gradually disappearing.

I don't expect the government takeover of the credit mechanism to stop, but if it does, both oil production and oil prices will be quite a bit lower. In the long run it's all about the energy. For the foreseeable future, it's mostly about the credit

But why do we want energy and money anyways?

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