Oil company stocks should be a good investment in the long run due to the developing energy crisis and resulting oil shortage in the world. Oil & gas prices were soaring prior to the recent economic meltdown. Prices collapsed as the recession hit. Oil company stock values followed oil & gas prices down but the stock prices should recover when the overall market recovers and oil & gas prices begin moving up again. The approach of peak oil is, of course, a major factor in the anticipated increase in oil and oil company stock prices. The fact that no comprehensive energy plan has been developed by the U.S. also lends credence to the speculation that oil prices will eventually, once again, soar upwards. Of course, on the other side of the issue, the U.S. government sometimes seems determined to push the world into a deep recession or depression as witnessing our ongoing credit crunch and recent Wall Street crash. A deep recession or depression would, of course, reduce the demand for oil and other fuels. ( Note: This is being written early in the Obama administration and we sincerely hope for an improved performance regarding energy and, indeed, in government efficiency.)
I think it likely that the recent substantial decline in oil stock values will probably turn out to be an opportunity for investors.
Are you ready for an investment in an oil producing company or do you prefer to invest in an alternative energy company or do the companies jumping into the shale formation natural gas plays interest you? What about investments in companies engaged in refining, tanker operations, or oilfield services?
Mutual funds that specialize in oil companies, may be the best energy stock investment if you are as cautious as I am.
Some folks will make profits from the energy stocks during the energy crisis. It might as well be you! (But, be cautious!)
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Breaking News!
Since early 2008, five items of significant importance to oil company stock investors have occurred:
1. Activity in the Bakken Shale Formation of North Dakota, adjacent states and adjacent Canadian provinces has become red-hot as word of the immense size of oil potential of the Bakken shale Formation has become better known. Oil companies are now flocking to North Dakota to work on the prolific but difficult-to-recover Bakken oil. High oil prices and improved drilling technology (notably in horizontal drilling and fracturing dense shale formations) now allow the oil to be recovered profitably. For more details on some of these oil companies involved, see Large Oil Company Stocks and Small Oil Company Stocks.
2. A giant oil field - Carioca Field - has been discovered offshore of Brazil by Petrobras. The estimate of 33 billion barrels for the size of the oil field would make it the third largest oil field. The oil lies under a mile or two of salt so recovery will be difficult. This discovery was preceded by another large oil field discovery offshore Brazil. Brazil is getting hot! They should become a major producer in a relatively few years if oil prices are high enough to justify recovery expenses.
3. The discovery of a massive natural gas field - the Haynesville Shale Formation - has been announced and is in rapid development. If early promise proves correct, this Northern Louisiana-Eastern Texas natural gas strike, alone, could have a major impact on solving the energy crisis.
4. As other "experts" blather nonsense - value of corn ethanol, etc. - about the energy crisis, a pioneer of the oil patch - T. Boone Pickens - has come forward with a specific plan to combat the oil shortage. The Pickens Plan proposes using our abundant natural gas as a bridge fuel while, at the same time, developing wind energy (windmills ) as a major alternative energy supply. And Pickens is putting his money where his mouth is!
5. To counter the good news of the above items, a very pessimistic cover article appeared in Time Magazine in 2008. The article casts doubt on the wisdom of using ethanol and biofuels as alternative energy sources. This article (and similar articles in other media) is so impressive that it is likely to cause changes in how we look at peak oil and alternative energy. It also makes the above-discussed discoveries in the Bakken Formation and offshore Brazil that much more important........we desperately need new conventional oil until we can get alternative energy sources that actually work!
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My present outlook for the energy crisis and for oil & energy company stock investing is as follows:
Peak oil is still on the way but its arrival has been delayed by development and improvement of existing oil and gas fields, discovery of a few new oil and gas fields (notably in the deep Gulf of Mexico, the Bakken Formation of North Dakota, offshore Brazil, and, most impressively to me, the Haynesville Shale Formation (natural gas), and, finally, by development of certain alternative energy sources such as oil sands, wind energy, hybrid cars, LNG, etc. Recovery of oil from oil sands and recovery of both oil & natural gas from previously ignored shale formations are being ramped up especially fast in North America. LNG usage and wind power is moving rapidly overseas. Ethanol use was moving fast around the world but is now coming under pressure as evidence mounts that the production of ethanol for gasoline blending is pushing up the price of food.
In addition to the above additions to energy supplies, aggressive energy efficiency improvements are being developed and have the potential, if fully implemented, to make a major impact in reducing energy demand as did the energy efficiency improvements of the 70s, 80s, and 90s during past energy crises.
Despite the above somewhat rosy scenario regarding the conventional oil & gas discoveries and alternative energy development, we will eventually run out of conventional oil, and there is still, as yet, no complete substitute for oil, and supplies of the fossil fuel will continue to decline (demand will increase!) as peak oil approaches. This is especially true for oil because of its use in automobiles, trucks, airplanes, etc.
The rapid industrialization and improvement in living standards of China and India are contributing significantly to the increase in demand for oil and natural gas. Also, the one-time backward countries of the middle east are advancing out of the "undeveloped" ranks fast and are using more and more of their own oil. Less will be available for export to the U.S.
Stocks of conventional oil-producing companies should be a good investment.....for the long haul! As a diversification, the oil and energy investor may want to consider alternative energy company stocks although caution is advised. With the heavy interest in alternative energy, this stock sector is somewhat reminiscent of the Dot.com boom and bust of a few years ago. Actually, many investors have already been burned pretty badly as the bust in the alternative stocks is already underway.
The recent decline in the overall stock market affected some oil stocks very negatively. However, the worst is hopefully over and oil company stocks look like promising investments for the long run.
Many of the major oil companies stocks appear to be now under-priced and should be relatively safe to buy (unless our government puts us in a severe recession or depression due to blunders). Another caveat is, if gasoline prices rise too rapidly in the future, that might put pressure on congress for some sort of screwy, punitive legislation toward the big oil companies, particularly since the Democrats have taken control of congress and the presidency. However, such legislation should be limited in scope. Congress cannot afford to harass the oil companies too much.....they are the providers of our energy sources!
Twenty (20) of the large oil company stocks (examples: ExxonMobil, Petrobras, Devon, Chevron, etc) are reviewed. (Recommended: Review Petrobras for discussion of their giant field discovery off the coast of Brazil)
These companies are volatile but less likely to be affected by government punitive legislation (indeed, punitive legislation toward the major oil companies may, by default, reward the efforts of small independent oil companies!), and many small oil company stocks may offer good rewards when oil prices begin rising again.
Ten (10) of the small oil company stocks (Frontier Oil, Vaalco, EPL, UPL, etc) are reviewed.
Use due diligence since some of the smaller oil companies are more speculative in nature.
For convenience, oilfield service companies, oil drilling companies, oil tanker companies, & oil refinery companies are lumped into this category. There are some great opportunities in this area but you need careful research. For example, some stocks, e.g., the oil tanker stocks, seem to be incredible bargains but my research indicates they seldom move up the way we think they should. They always appear to be bargains. A very peculiar stock group! Has their time come?
Eight (8) of the oilfield services company stocks (Halliburton, Schlumberger, Transocean, Baker Hughes, etc) are reviewed.
The alternative energy stock companies require the most agility in your trading. For example, early investors (speculators) in the "green pill" company (I don't know the company's name) probably made big bucks quickly due to the TV publicity, but later investors are going to be left in the lurch as word gets out that the green pills are nothing but moth balls and have no affect on gasoline mileage.
There are some good opportunities in the alternative energy company stock sector and some real scams. I would advise trading lightly. A knowledgeable broker's advice should be helpful with this group.
Nineteen (19) of the alternative energy company stocks (Archer Daniels Midland, First Solar, Sasol, etc) are reviewed.
The alternative energy stocks remind me of the Dot.com boom and crash of a few years ago. I learned some very painful lessons in that crash! But there are opportunities in the alternative energy group if you can pinpoint the right stock.
Space does not permit an extensive list of definitions. However, for the person new to oil stock investing, a few of these definitions are in order:
1. Common Stocks. A share of ownership in a company. One share is the smallest share of ownership you can have. A share of stock normally gives you the right to vote for the company's board of directors. It also gives you the right to receive a dividend if the company distributes dividends from earnings. As an individual stockholder, you cannot be held liable if the company goes bankrupt or loses a lawsuit.
2. Preferred Stock. Preferred stock have one big advantage over common share - the first right to dividends. They get paid first and then the common stock holders get paid. However, the preferred stock dividend usually has a set or maximum rate so, if the company really makes big money, the common stock holder's share should be higher. Also, preferred stock holders often do not have the right to vote.
3. Bonds. Bonds are credit instruments issued by companies and government agencies. If you are a common stockholder of a company, you are a part owner of the company. If you hold bonds, you have, in effect, loaned the issuing organization money. You are a creditor but you don't hold any ownership rights.
Bonds usually pay lower interest than the dividend rates of common stock and preferred stock. However, the bonds are much safer than the stocks. For example, in the event a company should go bankrupt, the bond holder will be paid back completely before stock holders get anything.
Additional oil investment terms that the oil stock investor may want to research (and search for) include "penny oil stocks, oil mutual funds, oil partnerships, oil & gas drilling funds, etc." I recommend your research start with Wikipedia.
Happy trading!
1. Bakken Formation Oil. Whoever thought there could be a giant oil field in North Dakota? Estimates run from a few billion barrels to 500 billion barrels. How much is recoverable is the big question!
2. Oil & Gas Prices. There is no good news for the consumer about oil and gasoline prices. They are going higher!
3. Bakken Oil Companies. The Bakken Formation is the hottest oil rush at the present time and the oil companies are jumping in with both feet.
4. Haynesville Shale. The massive natural gas strike in Northwestern Louisiana - Eastern Texas.
5. Germany in World War 2. German Side of World War 2
Oil companies stocks are divided into four categories - large oil companies, small oil companies, oilfield services companies, and alternative energy companies. The large oil company stocks and the oilfield services stocks are the safer investments. The speculative nature of investing in small oil company stocks and alternative energy stocks is noted.
Disclaimer
This web site, titled Oil & Energy Stocks - Time To Invest in Oil Companies? and the information included herein, is intended to provide information only and should not be construed as investment advice. The information provided is meant to broaden your knowledge and enable you to make better investment decisions within your portfolio.
Sometimes I give an opinion on the quality of an investment. This information is based solely on my own investment goals and investment needs and might not reflect your goals and needs and might not be an appropriate investment for your portfolio.
Please consult with your financial manager/consultant/accountant before actually purchasing any of the investments discussed herein.
e-mail me @ vanc13@cox.net (Author: Van Cook)
Last updated: 06/27/09
Oil Company Stocks