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Strategies & Market Trends : Dino's Bar & Grill -- Ignore unavailable to you. Want to Upgrade?

To: Goose94 who wrote (11029)	1/7/2015 8:33:01 AM
From: Goose94	Read Replies (1) \| Respond to of 203764

The Crash In Oil Prices Raises Questions And Opportunities For A Lifetime The price of oil has dropped nearly 60% in the last 4 months or so. Conflicting information makes this perhaps the most intriguing topic of the decade. Along with questions come opportunities. (click to enlarge) The "crash" is obvious. (click to enlarge) Are my eyes deceiving me, or is supply still below demand as shown in the chart above. Is Yardeni "lying"? Is the US Department of Energy not giving us the truth? I would seriously doubt that. My Thesis And Our Potential OpportunityLet me see if I can be clear in my thesis here. The economic law of supply and demand means that when supply of a product greatly exceeds that of demand, the price of the product declines. If demand increases and supply decreases, the price of the product rises. As any manufacturing expert will tell us, if demand is weak on a product, they stop production until either the existing supply is significantly reduced, or the demand builds to a point where it makes sense to keep manufacturing the product. Stay with me here. Now, in the case of oil, we have been bombarded with the news that there is a supply glut that has been unmatched in the history of mankind. At the same time, the largest manufacturers are increasing production even though those same news reports that are screaming "glut" is also screaming reduced demand. This simply does not make sense in any of the economics courses I have ever taken, whether beginner or advanced. Ergo, I believe something else is going on that mere mortal investors are simply not privy to and have to guess at. Let's Take A Look At Just A Few Conflicting Occurrences In The Oil Patch US Crude Oil Production data by YCharts Just looking at this simple chart shows (look closely) that production of US oil has rapidly increased, and according to news reports, increased production is scheduled for 2015 as well. The prices of just about every other oil metric has collapsed rather suddenly as you can see. Now, I have heard and read about all of the reports that the US is playing a game of "chicken" with some foreign countries, like Russia, Iran, Venezuela and even some OPEC nations, but these nations have no plans on cutting production, and are actually increasing supply. To me it looks as though the US is rattling the oil saber as a show of force, and that it has no desire to stop becoming an energy self sufficient nation. I love that actually, because it is about time that we take charge of our own energy needs and call the shots for not only us, but perhaps the rest of the world. However, why would the two largest energy companies on the planet; Exxon Mobil (XOM-NY) and Chevron (CVX-NY) continue to produce product if it loses money on every drop? It simply does not make sense since both of these companies can quite easily use their vast resources to grow other portions of their businesses rather than throwing good money after bad, right? I am old enough to remember when OPEC had the US by the "proverbials" back in the mid-1970's and intentionally kept a lid on oil production (the "embargo") just so the price would increase, and as "punishment" against the US for its participation in the 6-day Yom Kippur War. As Wikipedia explains it: OPEC started the embargo in response to American involvement in the 1973 Yom Kippur War. Six days after Egypt and Syria launched a surprise military campaign against Israel to regain territories lost in the June 1967 Six-Day War, the US supplied Israel with arms. In response to this, OPEC announced an oil embargo against Canada, Japan, The Netherlands, the United Kingdom and the US. That is the reason we have the strategic oil reserve supply in the first place! So we are not held hostage to nations who hold a "hammer", in case of an emergency. As a matter of fact, it was not that long ago that the President authorized a massive release of millions of barrels of oil from that reserve to offset extremely high prices. These historical issues are factual and can be found just by doing an Internet search folks, I am not that smart to make this stuff up. Questions Lead To Once-In-A-Lifetime Opportunities SometimesJust take a look at the share prices of XOM and CVX: XOM data by YCharts Both companies have staged a bit of a rebound even as prices of oil have continued to decline. The high point for CVX and XOM were reached just this past August. CVX hit roughly $135.00/share and XOM hit about $105.00/share. The current price of CVX reflects a 20% drop from its high point and the current price of XOM reflects a 15% drop from its high point. I smell money. More than that, I smell income now and more in the future! The current dividend yields on each of these mega cap blue chip dividend aristocrats are more than compelling. Over the long term, the income received could secure your entire financial future. XOM: 2.95% yield, $2.76 per share is the current annual dividend amount.CVX: 4.12% yield, $4.28 per share is the current annual dividend amountBoth of these companies have paid and increased dividends for more than 25 consecutive years.I believe, that given the conflicting reports on what has been going on in the oil patch, investors should buy each of these enormous companies' shares and hang on for life. I Could Be Wrong Of CourseNothing is risk free, and there is no free lunch. While I believe my thesis will turn out to be correct, there will be consequences if these companies begin losing money and the share prices tank. Anything is possible so please do not take these opinions as slam dunk ideas to place all of your eggs in one basket. If I am correct, well, let's see what happens. The Bottom LineOil, all of it, will be used at some point and perhaps we are witnessing the"REAL peak oil" phenomenon. If I am correct, we will stand to gain in BOTH income and capital appreciation, sooner than later. Both of these stocks should be bought on the dips and held in my opinion. Disclaimer: The opinions of the author are not recommendations to either buy or sell any security. Please remember to do your own research prior to making any investment decision. by Regarded Solutions