Broker Check

Time to Invest in Oil?

January 13, 2015

With the price of oil dropping over 50% in the past 6 months, you may be thinking this is a great buying opportunity.  If you are – you’re thinking like an investor!  Buy when prices are low rather than high. 

But the price of oil is notoriously difficult to predict.  Just yesterday, Saudi Prince Alwaleed opined that the price of oil will not reach $100 per barrel again. One thing to keep in mind about this opinion piece is that the Saudis have a vested interested in wanting the price of oil to stay low – they want to drive shale oil exploration in the US out of business.  And the lower price has been having some effect because fracking is not profitable when the price of oil is so low.

Shale is feeling the pain: Alwaleed said one "positive side effect" of the oil crash is it will allow Saudi Arabia to see "how many shale oil production companies run out of business."

In this article, Brett Carson, CFA makes a well-reasoned argument for the price of oil to stabilize around $75 per barrel.  And Michael Lynch, a contributor at Forbes discusses exactly why it’s so difficult to predict in advance the price of oil.

Taking the plunge now to invest in commodity oil futures or energy stocks is definitely a risky proposition.   There is no guarantee of positive returns in the near future and short-term losses are likely. No one knows what 2015 is going to bring when it comes to the global economy or political unrest.  Everyone has an opinion and all we can do is make educated guesses and take calculated risks.  

For a longer-term investment with a 5-7 year time horizon, I do think this is a good buying opportunity for energy stocks

Give me a call if you want to discuss the exposure of your portfolio to the energy sector or oil in particular.  


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