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Thoughts on oil

September 22nd, 2009 at 08:14 am

Stock market talk.

One of the more curious phenomenon I've observed is that a lot of things could be going through my head even though I could still end up doing absolutely nothing with my trades. Big Grin

Take my current oil position for example. Er, oil services with a side of natural gas to be exact. Conoco Philips (COP). Since the time of my purchase, the darn thing has run up to 20% YTD.

I bought it when oil was like $30 a barrel, and though I may not be the sharpest tool in the shed, it doesn't take a genius to realize that it has gone way too low. The second I heard OPEC was cutting substantial supplies, I was in.

But now, we're at a point where I feel oil has reached a fair market value... or at least one that OPEC seems to be satisfied with, especially considering that we are still in the midst of a recession.

So, now I have to figure out what I think may happen next. I know oil producers have a ton of oil standing idle. I just read that they're already introducing more supply, but still, they are deliberately trying not to flood the market to maintain current prices.

Now, here's the thing. If the economy recovers, they'll be happy to unload their excess. I don't think they'll deliberately choke supplies to jack up current prices even more because they know the delicate condition of the current markets. That and considering they just increased their supplies by a bit, and I think that action speaks for itself.

Contrast that with a double dip scenario. The market goes back down, and what do they do? They may decide to cut supplies again to maintain current pricing, but that's not likely as they have fought internally in the past against such a move. Again, they are all too aware of market conditions.

What is more likely to happen is that they may more or less maintain current levels and let the price of oil fall again. Again, if we slip back into recessionary lows, the last thing they want is to stifle recovery by having gas prices too high. They may settle for $60 or even $50 a barrel.

The market could conceivably move sideways as well, but it's hard for me to imagine that such a market trend is sustainable with so much going on. And anyways, COP isn't the only dividend producer I have, so I'm still good for the market going sideways....

At least that's what's going through my mind right now. For now, I haven't sold yet, but I think I am getting ready to on the basis that there seems to be more downsides than there are upsides. Besides, 20% gain is pretty respectable, and there's nothing wrong with locking that in....

Anybody have any thoughts on this?

2 Responses to “Thoughts on oil”

  1. creditcardfree Says:

    My only thought is: 20% gain. Take it!! I have no further insights.

  2. LuxLiving Says:

    In my home area I ALWAYS buy at Conoco Phillips! Nice to know I'm supporting a friend.

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