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What do you folks make of the "End of oil era" that has been making rounds?
For e.g.: Dennis Gartman's call, Goldman Sach's call for depressed prices, oil futures even 7-8 years out trading at the $80 range etc.
While I dont think we are at the end of the era, I see the dependency continue to decline slowly and gradually over the coming years and decades. I am more bullish on natural gas and think that natgas will be big this century just as oil was in the last.
Heres an interesting graph from Deutsche Bank Research.
![[Image: oil-natgas.png]](http://roadmap2retire.com/wp-content/uploads/2014/10/oil-natgas.png)
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I think Gartman was smoking some crack yesterday.
While I do agree that natural gas is going to continue taking some of the pressure off oil, I don't think we are going back to $10 or $20 per barrel in oil as Gartman said was possible. Cold fusion has been talked about for 40+ years and we still aren't there, I wouldn't expect Lockheed-Martin to have the "holy grail" just yet.
If oil goes much lower than $75, most of the shale drilling in the U.S. slows significantly and with high decline rates, production would drop quickly in a year or less. The mess in the Middle East isn't going to end anytime soon either so I'm not too worried about them flooding the market.
I think over the next 5+ years oil will continue to vacillate between $80 and $120, with temporary periods lower or higher than that depending on world economies and geo-political concerns.
Any drop lower than that will cause production to decline and consumption to increase to bring price back into the range and on the flip side any prices higher than that will choke off world GDP growth causing consumption to fall back into line with production.
Not saying there won't be volatility along the way, but that's how I see things.
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I think you are spot on, Eric. Once the prices drop enough, the production will see some lag and the smaller players could possibly see investments dry up - thus reducing the supply - bringing the prices back up.
Fusion announcement from LMT - I dont know what to make of it. Just because we havent figured it out in the last 40 years doesnt mean we cant figure it out now. But then again, lots of folks in the scientific community are skeptical about that announcement, so I will remain skeptical until I see some more follow up announcements/demos etc.
Considering that transport is still the biggest consuming sector of the oil industry, its good to keep an eye on where the transportation industry is headed. Headwinds for the oil sector include the drop in production prices for alternative fuels like electric/solar (Tesla obv leading the way there), and natural gas (I saw some reports of GE's plan to push natural gas conversion kits to fuel vehicles). Moreover, the auto industry is investing heavily in more efficient smaller yet powerful engines....if we even call them engines anymore (in Formula1, they are calling them Power Units now).
On the flip side, natural gas consumption by sector has Industrial usage as the largest sector (I have to dig in on which subsector and how/where its used), electricity generation (which could possibly see drops in consumption if utility companies start using more solar/wind farms), residential (no better way than nat gas to heat homes - I dont see a possible drop in consumption there).
Would love to hear some thoughts & comments on my outlook? Feel free to critique.
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I am long Lockheed-Martin (LMT), so I would love nothing more than them to find an economical way to produce fusion power.
I'm not very concerned about solar/wind taking market share from oil and gas. Without government subsidies they are not economical and even with subsidies they still take up a small portion of our power supply.
I own Cummins (CMI) for the push towards more fuel efficient and flexible fuel engines. I also think the pipeline companies (I own Kinder Morgan (KMI)) are a great play on growth in U.S. production because as the toll road for production they make money regardless of the price of oil and gas.
I also like the railroads (I own Union Pacific (UNP) and Norfolk Southern (NSC)) as they are moving more goods (crude/pipe/frac sand) for the oil and gas industry and as new manufacturing continues to expand in the U.S. due to cheap feedstock and energy prices those goods will need to be moved as well.
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Great stocks Eric. I own KMI as well.
I have started looking closely at CMI over the last few days, but they just bumped up 5% today. Still not a bad P/E on that stock.
Railroads are also a great stock to own and I am trying to decide between UNP, NSC and CNI.
Thanks for the input.
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(10-28-2014, 10:27 AM)Roadmap2Retire Wrote: Railroads are also a great stock to own and I am trying to decide between UNP, NSC and CNI.
I couldn't decide what I liked best, so I just picked one from western U.S. and one from eastern U.S. and called it good. Has worked out great so far as I'm up nearly 50% on NSC and 65% on UNP since last March.
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I am looking to buy COP, despite already having XOM, KMI, BP, and RSD.B. I feel like it's just simply a great value and even if I'm overweight in oil, I'm not worried because 1) these are ENERGY companies and we are going to need energy forever, and 2) I can just simply buy other things going forward. I was actually deciding between COP and NSC as my next purchase, but decided to go for COP just for its size, yield, and value as opposed to NSC (despite the fact that I really could use another railroad).
As for oil being a shrinking commodity, remember that these are energy companies, not oil companies. When the oil wells are dried up, what do you think Exxon Mobil and BP are going to do? They will have long switched their infrastructure to one that revolves around natural gas. I'm sure many of these companies will either be leading the way in nuclear, solar, and wind energy research, or will be investing in plants and facilities once those become a real thing. These are companies that provide energy to their consumers regardless of what form that energy takes. So even as an investor, I welcome these new alternative energies to the market.
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Thats the way to look at it, Joey. These are energy companies and not pure oil plays. And like you said, energy is always going to be in demand - no matter what. Couple that with the rising demographics, and you are in a good place.
I havent looked exactly what part of their composition is in which subsector. If anyone has that data/research, i would love to see it. My investments in CVX and KMI were because they are more exposed to the natgas sector than others. I know RDS.B is also big on natgas - but thats missing from my portfolio and might add it when I cycle back to energy companies. For now, I am done with the sector as I have a 17.5% weightage in energy.
ps: I am considering CVX as an energy investment even though Yahoo Finance etc seem to call it Basic Materials (someone raised that point in this forum a few days ago in another thread)
A lot smaller than the companies you guys have been discussing but I started with BNE.TO at 50, I see it has dropped ~5% today to ~47.50 but it is a company that looked like a decent play. 7.43% yield as of today's price. SU.TO was another consideration but felt BNE.TO was a better value when looking at PE TTM and BV averages over time and the higher yield.
I also like SU. Would love for the P/E to get below 15 but wouldn't mind it at these levels. Just need the capital :/
I must admit I was surprised that OPEC didn't cut supply to push oil prices up. Now that WTI oil prices are in the 60 and could stay there a while, we should consider which oil companies are best positioned to weather this situation. Which companies can continue to make profits and easily pay dividends despite protracted low oil prices.
With four more months on the books, has everyone's opinions changed or remained the same? Are you still buying, have you already bought, or are you still waiting for further weakness?
Personally, I am starting to think that this could be a protracted downturn in oil that could last at least into 2016 if not 2017. I am looking for further drops in stock prices once 2015Q1 reports come out (which I think will show us just how badly the price drops are hurting profits) for the various oil companies before I consider further energy purchases.
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