|
For All Your Investing Needs |
|
Welcome to the Investing Section of Options Realm |
|
Recently a group of my friends and I have been having very interesting discussion about oil stocks and whether or not they have had their day in the sun or are going to continue on their way back up. Amongst the group there is a mix of both technical and fundamental investors so the opinion on the matter is a rather diverse one. The debate has been going on between us for over a few months now and is not about to let up. One of the members of the group who we will refer to as Q believes that big oil has run its course and will now fade back down to the levels of a few years ago. Q is a technical investor who looks purely at the charts. His claim is that there is a gap that needs to be filled in order for oil to be properly valued which means that these companies are much higher then needs be and as the price of oil per barrel goes back down so will these companies profits. The rest of the group believes slightly different things then Q. They believe that oil companies still have room to raise in price because of the sheer amount of money that the companies are making. They feel that as long as oil prices stay somewhat close to the current per barrel price of oil then these oil companies will continue to be very profitable. The real question then is whether or not the price of oil will stay at current levels or move back down to the levels of the 1990’s. It is of my opinion that oil will stay around the current level. While the possibility of oil prices dropping dramatically is definitely there I feel that this is unlikely. On the other end of the spectrum some of the group feels that oil may continue to rise of the next few years because of supple concerns. I am not really buying into this theory either. While it is certainly a possibility of oil going over a 100 per barrel but I feel this is somewhat unrealistic. Oil has to stay at a relatively lower level otherwise the population will move away other fuel sources. For these reasons I feel that when valuing oil companies it is important to look at the companies and think of three very different possibilities. The first way to look at these companies is to assume that the price of oil drops back to the low levels of the 1990’s. The second is to look at the companies as if the price of oil stays at a constant level. Lastly, look at the companies with the outlook of oil as if it went to over 100 dollars a barrel. By analyzing oil companies through these three different ways we can better understand just actually what situation these companies are in. |
