Here is a followup to yesterday’s post…$$
So, after that post yesterday, I got a bunch of options for investing in oil. Check out this chart.
I tracked the (USO), (DBO), (OIL), and (DXO) ETF’s that follow crude. The (DXO) is a leveraged fund in that it results will be outsized to the direction, plus or minus.
The takeaway is that on a percentage basis, they all, with the exception of the (DXO) track each other identically no greater than the current 6.5% differential.
The (DXO) had a near 100% outperformance of the other three as oil rose into July and the downside to it has been roughly 50% worse on the downside to the current prices.
So, what to do. If you think we are in for a very swift spike in oil in the near future, I am leaning towards to (DXO). The “on the other hand” statement is that should oil continue to drift lower, your losses look to be 50% greater than on average than you will see with the others.
When to buy? If oil drops below $40 a barrel, it is going to be hard not to buy. Consider this, rumors are out there Israel is planning a strike against Iran nuclear facilities. Want to see an oil super spike?
The thing with oil is that is only a 50/50 supply-demand equation. The other half is the nut jobs that have most of it. For the past 6-12 months they have been very quiet…..how long has that ever lasted?
Disclosure (“none” means no position):None ….yet
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4 replies on “Still Thinking Oil”
Todd,
an initial lower risk strategy are oil partnerships (ex: $LINE). Most of them have hedged oil prices higher for a couple of years, they have vey high dividend yields, and you still bet on the upside of reserves appreciation.
What do you think?
other option: higher risk with oil tankers, lower risk with oil exploration
My question would be. if they have hedge prices at higher levels, then any price appreciation of oil from these levels is meaningless until it surpasses the hedged levels, right?
so, if they are hedged at $80 a barrel, then from $40 to $80, the rise is meaningless as that is already in the price of the equity..no?
by contrast, any more price fall in oil is only a problem as we get closer to the end of the hedges which, as you say may be a couple years
does that make sense?
Four Points:
– Their prices have fallen as much as normal oil stocks
– the effect of the hedges have not been reflected completely in their financial results (an important part of the oil fall was last quarter)
– You are already playing with 70-80 USD oil hedged prices
– You also have upside in the revaluation of their reserves (BBEP has more than 10 years in oil and gas reserves) if things go really up
and a fifth point,
http://seekingalpha.com/article/109393-25-oil-could-happen-before-a-return-to-100?source=email
Commodities are much more ST sensible than equities to the economic situation. To have hedged prices gives at higher prices lowers a lot the downside risk.