The question now is, when do we buy, WHO do we buy, will it drop more, and who are the
better drillers to take a shot at?
Hi Fredman and others,
I'm new here, and new to oil, but just wanted to post some thoughts I've been having looking at possible investments in oil. Comments are appreciated.
I selected XOM, CVX, OXY, VLO, HP, and COP quantitatively based on combination of factors including financial strength/staying power, and value metrics - with goal of being able to survive an extended lower oil price. I've pretty much already decided MUR will not be one I put money in, but it's in my exhibit too.
I've been looking at price action in some previous oil price declines, and one thing that's surprising to me is that the price of the oil stocks can move in a detached way from the price of oil during these declines. I'll attach some figures for the 2000 oil price fall and the 2008 oil price fall for comparison, and comparison to now. In each case, I tried to chart the price top, then the price bottom, and then the price recovery over time. WTI in the first column WTI crude price.
What really stands out to me in both of these cases is that it is entirely possible for the stocks to trend lower long after the bottom of oil is in. It's also possible for some oil stocks to go up while the price of oil is falling, and to decline while the price of oil is rising from the bottom of the price.
For example. Take CVX. In 11.27.2000 at oil price peak of 36.24, CVX traded at 26.65. ON 11.19.2001 at oil price bottom oil had traded down to 17.74, and CVX stock price had increased to 26.81. Then one year later on 11.19.2002 when oil price had increased to 26.41, the CVX price fallen to 22.63. So we see in this case CVX stock was negatively correlated with the price of oil. The initial response in oil stock prices are often muted given the significant drops in price of oil.
You can see similar trends long after the oil price bottom in 12.23.2008, Most stocks traded lower after the bottom in oil price, than they did at the bottom in oil price - often for years. For example: At the oil price bottom on 12.23.2008 XOM traded at 64.45 (oil was at 30.28/barrel). On 7.6.2009 XOM traded at 59.09 (oil traded at 64.06). On 7.6.2010 XOM traded at 51.13 (oil was now at 71.96).
This same trend plays out in many of the stocks. I guess my conclusion is the bottom in the price for oil doesn't necessarily mark the bottom in the price for the oil stocks.
I'm really left scratching my head as to what to do here, but my initial impression from the history is to not be in any hurry, and to scale in slowly.
I haven't followed the industry much, but a key question I have after looking at this data is: "What causes the initially muted price response in the stocks to the drop in the price of oil?" XOM, CVX and COP in particular seem to be slower to bottom than would be expected. I might put VLO in that boat also, but it's a refiner so maybe different dynamic there.
Appreciate any thoughts on what I see as peculiar price action. |
