When talking about energy companies and considering plunging oil prices, this title is very true. Oil prices hit a 5-1/2 year low this week, decreasing almost 50% since this summer. As you might be aware many different things caused this to happen and because of that santa’s bag is full of hurting oil companies that are trading very low right now. Everything started back in November with OPEC’s decision to keep the current production ceiling in an effort to undercut growing US Shale Production. A few weeks later, IEA (International Energy Agency) lowered 2015 global demand forecast by about 200,000 barrels per day (bpd). Let’s not forget that the US dollar rose to a 5 year high and Russia is nearing a recession point while Europe is struggling to correct their balance sheet.
Remember Rocky and his epic fight with Apollo Creed? Well his final punch to Apollo’s face is the punch all these factors had on the oil price.
Ain’t no comeback from that one. At least this round (quarter). Perhaps a few more. It is hard to tell if oil prices hit rock bottom, but my point is that if we are not there we are very close! What does that mean to you and why should you care? Hopefully you remember the lesson from Sir Isaac Newton and you learned that now is the time to go back in when everyone else is bailing out on oil companies. With the assumption that prices are hitting rock bottom, low prices should eventually drive demand up and bring it to a decent level. That nicely follows the suit, buy low-sell high. Now is a good time to buy low and wait for the market to correct itself. OPEC announced that they won’t meet before June unless something drastic happens in the meantime. This supports the idea of letting the market do its own thing. Now let me remind you that we are assuming these factors will play out somewhat to what we are projecting- it is not a guarantee. The oil market is not as stable as it used to be (if you can say it was ever stable), but the fact is that there is an opportunity within the oil sector right now. Keep in mind the year of 2009 when prices of oil dropped significantly and came back in just a few months. The chances of that happening are slim considering the current 2015 outlook, so to play it conservatively, I would give the market a few quarters to figure this one out. Until that happens, you have a chance to capitalize on this global oil crisis. If you decide to do so,down the road, Santa might have some nice capital gains in store for you.Two companies I’d suggest looking into are SLB and WLL.