Is Now a Good Time to Invest in Oil?

I am going a little afield from the usual menu of faith-based entries with this post, but I am also an aspiring finance geek and wanted to put some thoughts together on the recent trend in oil prices. But don’t worry, one of my core Christian convictions remains that we cannot show respect to our creator while systematically disrespecting his creation (especially when it’s done in the name of short-sighted economic gains at the expense of just about everyone, especially the poor and defenseless). Yes, gasoline is “less-expensive,” these days, but if you were driving in the mid to late 90’s, then you know it still isn’t “cheap.” And when we figure in the externalized costs of oil (like health problems and environmental destruction), it is still way waaay too costly.

Anyway, I just read a friend’s blog this morning that discussed the ramifications of the drop in oil prices for personal finances. It was well done, and you can find it here: What Falling Oil Prices and a Rising Dollar Mean for You. But it got me thinking about investments in oil as a money maker or a portfolio holding. Unfortunately, if you own any mass-market exchange traded fund (ETF) or mutual fund that focuses on large-cap companies or the S&P 500, you absolutely have money invested in the oil industry, like it or not. It is what it is, and there’s nothing you can do about it if you prefer index funds (like me). That being said, there are ETFs and mutual funds that are specifically dedicated to the oil sector (as well as individual stocks if you like extra exposure). The question, therefore, is: “Is now a good time to buy in to oil-dedicated investments?”

As much as it pains me to say this (no really, I may have to punch myself in the face here), right now might be a decent time to invest in oil (in general) if you are a short-term or even medium-term investor. Oil securities, ETFs and mutual funds have generally taken a beating in the last 6 months, and I don’t think this is going to last. There’s just no way. Short term, I’d say less than 2 years. Mid-term? Maybe 3-7. And when prices spike again, it could be the perfect model of buying low and selling high, if you buy-in now. But investor beware, so-called “market timing” is notoriously difficult, and I am not recommending any such thing. In fact, the prevailing wisdom of benefiting from investing in stocks, bonds, ETFs and mutual funds is to buy and hold, holding forever if possible (thanks, Mr. Buffet). With that in mind, Now is definitely NOT the time to take a long-term approach to investing in gas and oil or any of their subsidiary businesses. Ah, maybe I can sleep tonight after all.

Whether it’s investing or budgeting for sub-$2 gallons of gas, I think it is a huge mistake to get too excited or make long-term financial plans that depend on lower oil prices year over year. What I mean is that the current trend is likely a fluke in the steady rise in demand for and shrinking supply of oil. At least easy-access oil, that is. At best, this will cause oil securities to stagnate concerning capital appreciation and dividends too, and maybe even continue to fall. And please, for the love of God, don’t go buy a Chevy Suburban or Ford Expedition thinking that gas prices won’t ruin your day in the future. They will.

Over the mid-term, the less expensive oil hiccup will simply not continue. Oil companies all over the world have a vested interest in higher oil prices. Combined with free-market mechanics, this necessitates that less-profitable drilling and refining will be shutdown, which will entail reduced supply. On the other side, demand will inevitably increase, especially with the growing middle classes in China and India (and all of them want cars). This will cause oil securities to rise in capital appreciation and perhaps dividends too.

Falling production with increasing demand = higher prices, and this is exactly what Saudi Arabia (the cornerstone of OPEC) wants AND why they have decided to increase short term oil production. It’s a brilliant market play on the part of the Arab Kingdom because (as I said) this will drive a lot of the smaller and more challenging oil fields to become unprofitable and shutdown (think dirty tar sands oil & every smalltime operation in West Texas and North Dakota). Once those players are out of business, and OPEC chops its supply (and they will, mark my words) that organization can do whatever it likes with prices and the rest of the world will just have to say “Thank you, may I have another?!”

That being said, over the longer-term, the entire oil business is in deep trouble (and it should be, given the environmental and geo-political consequences of long term oil addiction). Eventually we are going to wake up and realize that fossil fuels (and all the petrol dictatorships who hate the USA that depend on them) are not a good thing for our nation or for the world at large to keep financing. When we finally accept the poisonous nature of our addiction to fossil fuels, and when we finally build-out a renewable, clean energy economy that eschews dirty fuels, long-term investments in the fossil-fuel industry are going down in a major way. Hasten the day.

But it’s not just an environmental thing. As hinted at above, moving away from oil means that nations like Venezuela, Iran, and Russia get put in a serious financial pinch. These nations aren’t exactly a list of America’s biggest fans, and each of them are presently facing serious financial crises and domestic turmoil for no other reason that falling oil prices have gutted their economies (think military and social spending). I suggest that Putin’s recent land-grabs are motivated by the desire to distract as much as they are to commandeer much-needed, non-oil resources, but that is a separate topic, I suppose. Nevertheless, the fact is that moving away from oil means that we can put hostile nations (many of which use oil revenues to finance terrorism) out of business, and that is a wonderful thing. It also represents a serious set of motivators for clean, renewable energy sources like solar, wind, geothermal, etc. Even if we prefer to deny science / climate change, the fact is that moving away from oil can protect more than the planet.

When we take the longview, it seems that the heyday of oil is over, perhaps in its twilight or at the very lest, well past noon, and thus not a good option for the buy and hold investor. Divesting from fossil fuels now = investing in a healthy and peaceful future.

And I think that’s something Jesus could dig.

Thanks for reading me.

-Lambeth

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About C_Lambeth

I currently live in the Pacific Northwest. I graduated from Missouri State University with a Bachelor's of Science and from George Fox Seminary (now Portland Seminary) with a Master's of Divinity. In addition to knowing Christ and helping others know him, I am passionate about peace, the environment, Christian feminism, justice for all (not just the wealthy) and being a lifelong learner. Please feel free to comment on any of the posts here or to suggest new posts altogether. Thank you for reading me! -CL
This entry was posted in Environment, Other Topics, Politics. Bookmark the permalink.

5 Responses to Is Now a Good Time to Invest in Oil?

  1. C_Lambeth says:

    For a little extra reading: The Bank of England came out today warning of huge financial risk from continuing to invest in fossil fuels — http://bit.ly/1DPAr8a

    And…
    Russia’s Economic Crisis Spell’s Trouble for Putin

  2. Jeff K. says:

    Well, that’s an interesting notion, but I hope you realize that someone could make the same argument for adopting the beloved “drill baby drill” attitude here in the States, ANWR included. When oil prices go back up, it is going to make drilling in Alaska, offshore on both coasts and the Gulf much more lucrative and profitable. Same goes for N. Dakota, the Baccan shale deposits and the Keystone pipleline. Drilling everywhere and anywhere we can will also put “the pinch” on countries like Vz, Iran and Russia, and you’ve made a great argument for doing just that.

    • C_Lambeth says:

      Jeff, Thank you for your comments. I think you would have a point IF the only issue in play was who receives the money for oil drilling and production. Clearly it is better for American companies, workers and national security if our oil dollars go to our own businesses as opposed to the likes of Venezuela, Iran, Russia, or any other nation that hates us and wants us to die or become irrelevant. In that sense, you are correct and we should drill baby drill. It seems that another self-punch to the face may be in my immediate future.

      HOWEVER, oil drilling and refinement does not occur in a vacuum, neither is it sold in one. With regard to the first part of that, what I mean is that no matter who does the drilling, refining, and burning, oil is toxic to the planet in each and every one of those three steps. Once again, even if we deny science / climate change, no one argues that it’s good to breathe the toxic slurry that comes from burning oil. The same goes for refining, transporting and drilling the stuff. Just look at the lung-related diseases, cancer, and death rates around refineries. Spills happen all the time. Large, toxic fires, crashes, ship sinks and derailments also occur with alarming regularity, and each of these things are exceptionally dangerous and cause long-term destruction and corruption for both humans the rest of creation. PS: we don’t pay for any of those costs at the pump.

      And the situation gets much MUCH worse if we accept the reality of anthropomorphic (human caused) climate change. Again, the climate does not care who does the drilling and burning of fossil fuels, and it doesn’t restrict damage to the land, air, or water of the worst offenders either. We all swim in the same bowl on that front, so drilling ANWR etc. is literally like a collective punch to all our faces. No, thank you.

      As for the oil not being sold in a vacuum, we are kidding ourselves if we think oil producers in the United States will only sell their products to the United States and her people. One of the biggest lies about the Keystone XL pipeline and drilling ANWR is that it will keep prices lower at American pumps. It won’t. If a multinational corporation like Exxon can get $5 a gallon in the U.K., why would they sell it in the USA for $2 a gallon? They wouldn’t. The whole point of the Keystone XL pipeline is to get the oil to port so it can be shipped away.

      And for that matter, in a global economy, super high demand in India or China will quickly and inevitably impact prices at the pump here in the USA too. There is always a leveling in the world economy. High demand is high demand.

      Similarly, as long as our economy is addicted to oil, there will be a market for oil and competition among oil producers and sellers. This sounds like a tautology, and perhaps it is, but its implication is that there will be a market for oil regardless of where it is produced. Stated another way, as long as economies (USA or otherwise) are addicted to oil, petrol dictatorships who hate America will be bankrolled by somebody’s Dollars/Euros/Pesos/Rupees/Rubels/Yen somewhere.

      This is where clean renewables come into play (and why long-term investments in dirty fossil fuels are a loser’s game). When we finally wake up and start massively building clean-renewable infrastructure and kicking fossil fuels to the curb, the technology will catch on, and when it does, nations like Iran, Venezuela, Saudi Arabia and Russia will literally have no one to turn to when it comes to selling their dirty business. That day is coming, so why would we want to “drill baby drill” and try to become as dependent on fossil fuels (and as vulnerable) as that cadre of OPEC all stars? They’re getting hammered right now because of low oil prices. What happens when the price of oil falls too close to zero because of viable, clean alternatives? Dark times in oil dependent nations…

      Or good times for the renewable clean energy nations (and businesses).

      So… for the long-term investor, I think that companies that focus on clean, renewable electron generation, or at least sustainability, conservation, and efficiency are where the smart money is if we want to make energy sector investments.

      And just so I can be your annoying college roommate with some hot investing tips, each of the following ETFs are good places for the eco-energy savvy investor to start:
      ICLN
      PBW
      TAN -can you imagine what clean energy sector these guys are into?-
      FAN -equally cryptic, eh?-

      -CL

  3. Jeff K. says:

    Ok. Just for the record, I accept the reality of climate change and the science behind it.You’ve got a valid point there, but I’m not sure what we’re supposed to do about it, and right now clean energy isn’t big enough to totally replace fossil fuels. That’s just a fact. We need oil right now to power our economy and coal too. And like you said, I’d rather my dollars go to American companies than places like Vz. Iran or Russia. Also, most of the problems you mentioned with oil drilling, refining and transporting are comparatively small when compared with the damage of global warming, so I’m not sure going on a campaign against such localized drawbacks is very effective. Finally, you said that it doesn’t make any sense for the USA to become as dependent on oil as Saudi Arabia, Iran, Vz and Russia because it would potentially puts us in the same “pinch” as they are in right now because of falling oil prices. The problem with that argument is that, unlike those rogue nations, the U.S. economy is not a one trick pony. We will never be as dependent on oil drilling and refining or transporting as those nations, so it makes sense to build up our oil industry now and continue to put pressure on them.We have lots of other economic power in addition to oil.

    • C_Lambeth says:

      Jeff,
      Thanks for another reply.

      I also appreciate that you accept the reality of climate change. I was starting to wonder, but this kind of undoes your original comment in this thread:

      “…I hope you realize that someone could make the same argument for adopting the beloved ‘drill baby drill’ attitude… .”

      We cannot rationally make an argument for “drill baby drill” if we understand the growing dangers connected to climate change. I admit that the smaller, localized incidents you questioned are not as daunting as climate change (unless it’s your house that is blown to bits by a derailed, explodey oil train), but they are still very serious problems, and all the more so when seen as a collective, systemic problem instead of isolated incidents.

      Nevertheless, I also acknowledge your point that clean renewables are not yet available on the scale that they are needed to replace oil and the requisite network of gas station dispensaries. Tesla has made some great leaps and bounds, and many auto manufacturers have introduced EVs (electric vehicles), but charging stations and battery capacity are still limiting factors and valid concerns for consumers, especially in places outside of coastal belts (why is it that middle America is always so late to the party?). Be that as it may, this is not a reason for us to stop building better batteries and better fueling stations and improving solar/ wind generating efficiencies. Quite the contrary. We need to invest there, a LOT, rather than in oil (or at least in addition to oil).

      Finally, you are right to say that the USA is not a one-trick pony when it comes to our economy. However, we are certainly a one-tricker (ok, 97.944%) when it comes to the fuel source that allows that economy to operate, and this addiction to dirty fuels is precisely what makes us as vulnerable to oil prices as are nations like Venezuela, Russia, Iran, and Saudi Arabia, et. al. The only difference is that their economy is mired in supplying oil while ours is mired in consuming it. For the sake of both the environment AND national security, we need viable, clean alternatives and we need them ASAP.

      Thanks again.
      -CL

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