Investing in oil companies

project15 · #1 (**permalink**) 10-19-2006, 02:27 PM

The price of oil has been declining these past few months. Is it possible and/or wise to invest in oil companies? I'm pretty sure the price of oil will probably increase again in the near future. What's wrong with this idea?

tinapbeana · #2 (**permalink**) 10-19-2006, 02:46 PM

nothing wrong financially with investing where the money is. i personally don't invest in oil companies b/c i prefer to support alternative fuel sources wherever possible.

RJB1180 · #3 (**permalink**) 10-19-2006, 02:57 PM

Like any stock do your ressearch about the company and industry independently. your online broker and money.com msn.com are all good places to start.

poundwise · #4 (**permalink**) 10-19-2006, 03:06 PM

Quote:

Originally Posted by project15

The price of oil has been declining these past few months. Is it possible and/or wise to invest in oil companies? I'm pretty sure the price of oil will probably increase again in the near future. What's wrong with this idea?

One mistake you are making here is equating the profitability and/or stock value of oil companies directly with the current price of oil. If you are looking to buy low and sell high, a change in oil prices does not necessarily have a corresponding change in the stock value of any given oil company(ies) or the sector.

What some speculative investors are doing at this time is investing in oil futures. This is what you may be after. link

sweeps · #5 (**permalink**) 10-19-2006, 03:38 PM

In the short term, oil prices can easily continue to slide due to recession. There is a strong argument that demand for oil will continue dropping for a few years.

In the long term, yes, it's going to be harder and harder to find enough (cheap) oil to satisfy projected demand. BUT don't discount the power of technological advancement. When resources become scarce, people invent new ways to get around those problems. Businesses will come up with new ways to use less oil or avoid oil altogether to get stuff done.

This is why I'm perpetually bullish on stocks and perpetually bearish on commodities. People find ways to overcome problems -- and I like being in a position to benefit from that human ingenuity.

Ima saver · #6 (**permalink**) 10-19-2006, 03:45 PM

Very well said, sweeps!

thekid · #7 (**permalink**) 10-19-2006, 04:21 PM

I bought in a bit (about 5K$) into energy stock based mutual funds. The return was fantastic last year (when I bought) -in the 40% range- and had been for previous years. The last two months or so have seen the funds drop by about 25%. I'm keeping them for the long term so haven't sold to lock in previous gains. I think this is key. Short term could see quite a further drop as reserves seem to be high and demand low (which can quickly get much lower if there is a recession). There is a security valve of sorts in the oil market however and that is OPEC. They lower (or threaten to lower) output -as they are now doing- if prices fall too much. This is probably the only reason why the stock hasn't fallen a lot more so far as the the prices seem to still be quite a bit inflated based on simple supply and demand. Anyway, my point is that short term the investment would be very volatile and dangerous (market seems to want to bring it down while it is artificially been kept from diving too much by the cartel). This could change and the price of oil could seriously correct itself. Long term, I think it is a good buy. There is the risk of new technologies, but I feel this is offset by the potentially much higher world demand from developping countries VS limited supply by the very nature of the commodity.

I would only buy now if I wanted to hang on for the long haul.

poundwise · #8 (**permalink**) 10-20-2006, 06:45 AM

Just FYI --

Reuters 10/20/06: Oil rises as OPEC surprises with bigger cut

FXCM: How can you profit from oil prices?

krayziebone33 · #9 (**permalink**) 10-20-2006, 09:43 AM

Although I have never invested in stock, I'll attempt to weigh in anyway. You may want to look into Ethanol as well. When gas prices were ridiculously high, there were a lot of people who began producing and using it in place of regular gas. On the west coast, they're predicting that Ethanol will replace gas altogether years down the road when more automobile companies begin to produce more compatible cars. I would imagine that this trend would gradually work its way east. Again, I am not an expert. This is just an idea.

tinapbeana · #10 (**permalink**) 10-20-2006, 10:03 AM

Quote:

Originally Posted by krayziebone33

Although I have ever invested in stock, I'll attempt to weigh in anyway. You may want to look into Ethanol as well. When gas prices were ridiculously high, there were a lot of people who began producing and using it in place of regular gas. On the west coast, they're predicting that Ethanol will replace gas altogether years down the road when more automobile companies begin to produce more compatible cars. I would imagine that this trend would gradually work its way east. Again, I am not an expert. This is just an idea.

i went to cedar rapids IA for work march 2005 & found out they've been using ethanol for 10 years or so. go figure, they are known for their corn

CraigThor · #11 (**permalink**) 10-20-2006, 07:23 PM

hehe, located in the Cedar Rapids area myself and ethanol blends have been around for a long time, as long as I can remember though I'm still young, but I know several Ethanol plants have started to surface around for the increased demand for the stuff. Alot of newer vehicles using flex fuels like ethanol and bio diesel are starting to show.

tinapbeana · #12 (**permalink**) 10-21-2006, 05:07 AM

Quote:

Originally Posted by CraigThor

hehe, located in the Cedar Rapids area myself and ethanol blends have been around for a long time, as long as I can remember though I'm still young, but I know several Ethanol plants have started to surface around for the increased demand for the stuff. Alot of newer vehicles using flex fuels like ethanol and bio diesel are starting to show.

cool, craig, you get to use corn fuel! if you have, lemme know what you think....

i've had folks argue that bio diesel and corn based fuel will hurt the economy b/c our farmers can't keep up with the demand. maybe it's short-sighted of me, but i think that if the gov't stopped subsidizing farmers who don't farm, then maybe it wouldn't be an issue.

CraigThor · #13 (**permalink**) 10-21-2006, 06:55 AM

as for biodiesel i think there are still lots of kinks to work out with it. for ethanol blends we need to stop developing the farms into major housing developments and there would be enough, not that I would want to out of work, since I work construction.

JBinKC · #14 (**permalink**) 10-27-2006, 12:17 PM

Nothing is wrong with it. I think however the key to making money in the sector in this environment has changed though. I think if you are able to find undervalued stocks with high potential for conventional oil reserve growth as opposed to picking the sector just for the sake of the sector's strong pricing or finding a company based upon its potential of developing bitumen reserves which probably will take decades to develop are going to languish some. Currently, I am very high on Heritage Oil and the stock is trading higher than it was during the summer.

LuxLiving · #15 (**permalink**) 10-27-2006, 04:00 PM

I like Baker Hughes - at least I think it's them - they've developed a tool that will allow oil companies to go back into old wells and drill SIDEWAYS and get at some of the oil they missed the first go round. Maybe their tool division anyway. Yes, it's Hughes as in Howard.

JBinKC · #16 (**permalink**) 11-06-2006, 04:39 PM

Heritage Oil on the TSX as stated before on my 10-27 post was up about 25% today to $25.40 CDN so it is not all bad in the sector. You need to find companies that can significantly add to reserves to buck the negative sentiment in the sector.