Why You Should Never Invest in Oil & Gas Companies Long Term

As far as portfolio is concern, we should always regards Oil and Gas companies as risky investments for a really simple fact:

They are very dependent on the Oil Price. 

For this reason only, we should pay close attention to these companies which can generate considerable profits in a cycle. 

Things to take note:

1. Invest them within the cycle

2. Don't be greedy and buy and sell according to the plan.

3. Stick to the plan. 

Let's collate the data for the past stock prices of the 2 O&G companies against the WTI data.

 

The portfolio strategy used:

1. Based on the WTI, we experience the Oil Price cycles peak to peak within a 3 to 4 year periods. 

2. Have a target set of how much profit you want to get with the cycle of 3 to 4 years. For this portfolio we target 20%.

3. Only buy reputable and well establish O&G companies. You can consider drilling companies but they are way too volatile for most investors. 

4. We can see 2 extreme cases here in Schlumberger and Transocean.

Let's zoom in on Schlumberger:

1. Started to shop for reputable O&G companies in the early 2008. 

2. Bought SLB nearly a year after the oil price peaked. 

3. Stock was kept on a look out to cash out. When news about a bull run on the oil price in late 2011 and it could be sold at 40% which was above my targeted 20% profit, it was the time to sell off and cash in. 

On the other end of the spectrum for Transocean:

1. The drilling market is very much like a cowboy playground. Companies get bought over, sold off and bought over again. the volatile nature is very messy at times and the risk is too much to stomach at times. Transocean is one such company that went through countless buy overs and sell offs.

2. In the current market, they are probably one of the few that has not restructured financially. For how long more, no body can say. 

3. Based on the data we can see how volatile Transocean can be. So it was lucky there was a tiny profit of 13%. 

4. For the hardcore investors, this is one investment that will keep you on your toes. If you play it right, it's very cool profit when you know what to do.

What to look forward in 2020

Let's revisit the graph:

1. we know that peak to peak cycle is about 3 to 4 years over the past 20 years.

2. Based on these data as reference, we can estimate the next peak of the WTI oil price is likely in late 2020 or late 2021.

3. Given that US elections in Nov this year, we may see a downside of the WTI oil price before it goes up. 

4. Given the US election factor here, the trends shows 1 or 2 years after the Nov US Elections, WTI will peak.

5. Except for 2004 Elections, WTI went on an unprecedented bull run.

6. Based on all these observations, the takeaway is to consider O&G companies from Nov 2020 to Nov 2021. This period may possibly be a good time to invest in O&G companies when the market expects the oil price to trend upwards. 

7. Of course oil price have many other factors but as a general rule of thumb, these info would trigger my investment mode to wait and see in the next few months. 

8. It will be advisable to monitor your companies that you will be investing during these crucial months. 

~tschuss!~