Investing

is now the time to invest in oil stocks?

  • Last Updated:
  • Nov 30th, 2020 9:08 pm
Tags:
Member
Feb 16, 2013
453 posts
60 upvotes
TGokou wrote: it will never actually hit '0' but it will lose 99.999% of it's value over the long run. The reason for HOD specifically is that there will always be inflation costs on oil and so oil will continue to go up over 5/10/20 years. However, even if oil stayed in a similar price range for the next 5 years the value of this will degrade because of slippage in the daily price of oil.

Let's give you an example. Oil is at $50 today, tomorrow it jumps to $55 (HOD.to will drop ~20% because it's 2x leveraged. Let's pretend HOD.to is $10 for the sake of convenience. It is now worth $8.) The following day oil drops back down to $50. HOD.to gains 20% to $9.6. Rinse and repeat. Now you see why HOD.to will always decrease?
I agree and makes sense. Beside inflation we have to pay for high management fee on these etf's... I just wanted to confirm if it really goes down to 0 and whether I missed something..Thanks.
Penalty Box
Dec 27, 2013
8003 posts
3986 upvotes
Toronto
TGokou wrote: it will never actually hit '0' but it will lose 99.999% of it's value over the long run. The reason for HOD specifically is that there will always be inflation costs on oil and so oil will continue to go up over 5/10/20 years. However, even if oil stayed in a similar price range for the next 5 years the value of this will degrade because of slippage in the daily price of oil.

Let's give you an example. Oil is at $50 today, tomorrow it jumps to $55 (HOD.to will drop ~20% because it's 2x leveraged. Let's pretend HOD.to is $10 for the sake of convenience. It is now worth $8.) The following day oil drops back down to $50. HOD.to gains 20% to $9.6. Rinse and repeat. Now you see why HOD.to will always decrease?
i thought it lost value because of contango from having to buy/flip the forward month future contracts.

with those leveraged ETFs that purchase futures contracts, you will always profit/make money as long as the underlying future is moving in the direction positive to what the fund aims to achive.. e.g. a bull xleverage etf wouldn't lose value so long as oil was increasing in value.
Sr. Member
User avatar
Oct 19, 2014
792 posts
97 upvotes
Waterloo, ON
I've been holding on to RDS.B & TOT, also had BP but sold it a few days ago. I'm thinking it's more profitable to go in & out of these since they seem to be going sideways now. Rather than holding them long term, because at the most they've got 20-30% upside and it may take them months or years to get there. What do you guys think?
Member
Nov 8, 2009
453 posts
151 upvotes
daivey wrote: i thought it lost value because of contango from having to buy/flip the forward month future contracts.

with those leveraged ETFs that purchase futures contracts, you will always profit/make money as long as the underlying future is moving in the direction positive to what the fund aims to achive.. e.g. a bull xleverage etf wouldn't lose value so long as oil was increasing in value.
Yes your right but it has to move a certain percentage in a timeframe that favors your call. For example, we all believe that oil will eventually go higher. Let's just say that we expect $70 by the end of next year. If oil moved up a penny a day every day there would be no slippage because every single day is positive. However we all know that any commodity will have some natural volatility to it. Hence one day it might move higher by a $1, lower by a $1 etc but over the long run averaging to a higher price...eventually hitting $70. However, due to the slippage effect you 'may' end up ahead but I doubt it'd be by much and realistically your actually gonna lose money buying HOU even if oil goes to $70.
Deal Fanatic
User avatar
Jul 19, 2003
8064 posts
708 upvotes
syedsalmanshah wrote: I've been holding on to RDS.B & TOT, also had BP but sold it a few days ago. I'm thinking it's more profitable to go in & out of these since they seem to be going sideways now. Rather than holding them long term, because at the most they've got 20-30% upside and it may take them months or years to get there. What do you guys think?
This sideways market is pretty annoying and harmful to everyone. For those saying they're in it for the long haul, great, but we're all getting our retirement delayed going sideways.

Its actually better to just crash first, then go up again.
Deal Fanatic
User avatar
Jul 19, 2003
8064 posts
708 upvotes
UWTI at 3.37 from 3.44 earlier this morning. Lots of pain.

Aren't I glad that I'm not playing leveraged oil ETFs like HOU/HOD/DWTI/UTWI right now.

Crude Oil Jun 15 58.29
Deal Addict
User avatar
May 25, 2008
1505 posts
777 upvotes
Toronto
masterhapposai wrote: This sideways market is pretty annoying and harmful to everyone. For those saying they're in it for the long haul, great, but we're all getting our retirement delayed going sideways.

Its actually better to just crash first, then go up again.
Just my opinion, but oil stocks should not be held for the long term. Even large integrated O&G companies are too volatile and exposed to commodity risk for inclusion in any long term investment plan. I held Husky (HSE)and PCA for years and years but always lost money on them - any money made on the upswing is lost again, and then some on the downswing cycle. I do have a few US speculative O&G plays that I plan on liquidating 100% at some point (that is if they don't go to zero first!)
Sr. Member
User avatar
Sep 10, 2004
687 posts
36 upvotes
STP123 wrote: Just my opinion, but oil stocks should not be held for the long term. Even large integrated O&G companies are too volatile and exposed to commodity risk for inclusion in any long term investment plan. I held Husky (HSE)and PCA for years and years but always lost money on them - any money made on the upswing is lost again, and then some on the downswing cycle. I do have a few US speculative O&G plays that I plan on liquidating 100% at some point (that is if they don't go to zero first!)
Im not so sure about that. Unless you bought Husky at its peak in 2008 (at ~ $ 50), I fail to see how you would lose money. Before 2005, the stock was < $ 25. Between 2009 and the present, the stock has ranged from $22 to $37. Plus, you would also be collecting dividends of $ 1.20/year per share along the way.

As long as you didn't buy when things were getting bubbly and didn't sell when the base commodity took a nosedive you shouldn't lose any money. Granted, you may not make much either.

In the end, commodities are cyclical, they will rise again and if you take the long view, now is a good time to establish a position.
Deal Fanatic
User avatar
Oct 9, 2008
5681 posts
2233 upvotes
Thornhill
G-Yo wrote: Im not so sure about that. Unless you bought Husky at its peak in 2008 (at ~ $ 50), I fail to see how you would lose money. Before 2005, the stock was < $ 25. Between 2009 and the present, the stock has ranged from $22 to $37. Plus, you would also be collecting dividends of $ 1.20/year per share along the way.

As long as you didn't buy when things were getting bubbly and didn't sell when the base commodity took a nosedive you shouldn't lose any money. Granted, you may not make much either.

In the end, commodities are cyclical, they will rise again and if you take the long view, now is a good time to establish a position.
If he started his core holding position 5 years ago in HSE at $27.10, without averaging down at all and if he reinvested 100% upon every quarterly dividend payment (DRIP calculated @ static $27.10 additions for simplicities sake) and he absolutely HAD to sell today @ $24.49, he'd still be in the black roughly 15%

Not a spectacular return at all for 5 years but that's Husky for ya :lol:

To be quite frank, if you're losing money investing in O&G companies in the long-term; something is fundamentally wrong with your investing method. For large-cap O&G stocks in this sector - it produces significantly reliable returns over the long-term.

If you have a well-thought long-term plan, good investment criteria, an appetite for accepting risk and are willing to mix in large-cap with some distressed producers who can offer high risk/return in this environment pending a recovery in oil over the next few years - you can possibly make hand over fist within the next 5 years if you've allocated in the right mix of companies out there. My current allocation in the O&G sector is 62% in distressed companies and 38% in well-off stable large cap companies. My goal is to eventually swing this allocation to the opposite with constant additions - to roughly 60% in large-cap and 40% in distressed. I'll continually be adding to this sector for at least another full year. There is no rush, and with a slow and steady approach since ground-zero that's only slowly turning the corner - the long-term prospect is your friend.
Sr. Member
User avatar
Sep 10, 2004
687 posts
36 upvotes
^ Agreed.

Two things I have also noticed:

1. The recent crisis has provided an opportunity for producers to really squeeze their suppliers/labour force. Cost/barrel reported in the quarterlies have started to decline. Hopefully this trend continues since it bodes well for long-term profitability.

2. Many companies are still projecting for increased production until 2016-18 (CVE, CPG, Husky).

Once the commodity bounces back (no idea when, but wouldn't be surprised to see $ 80-85/barrel oil by summer 2017-18); these companies will be raking it in and everybody will be moaning about gas prices again. By then, these companies will be in a much stronger position.
Deal Addict
User avatar
May 25, 2008
1505 posts
777 upvotes
Toronto
G-Yo wrote: Im not so sure about that. Unless you bought Husky at its peak in 2008 (at ~ $ 50), I fail to see how you would lose money. Before 2005, the stock was < $ 25. Between 2009 and the present, the stock has ranged from $22 to $37. Plus, you would also be collecting dividends of $ 1.20/year per share along the way.

As long as you didn't buy when things were getting bubbly and didn't sell when the base commodity took a nosedive you shouldn't lose any money. Granted, you may not make much either.

In the end, commodities are cyclical, they will rise again and if you take the long view, now is a good time to establish a position.
Purchases were between 2005 and 2007, not very good timing-wise on my part. All purchases, DRIPs etc. info entered into Quicken. Both Quicken and TD Waterhouse indicted a negative return for my investment pretty much all the time I held the stock. You may be right, and perhaps with a proper calculation of dividend reinvestment I probably came out slightly in the positive. I do know that comparing HSE to all my other large caps investments it lagged way back. I've held and continue to hold many stocks in my portfolio...HSE would be one of my top 3 "dogs" despite holding for the long term. Other two would be IGM Financial and Transalta...
Deal Addict
User avatar
May 25, 2008
1505 posts
777 upvotes
Toronto
G-Yo wrote:

Once the commodity bounces back (no idea when, but wouldn't be surprised to see $ 80-85/barrel oil by summer 2017-18); these companies will be raking it in and everybody will be moaning about gas prices again. By then, these companies will be in a much stronger position.
Just wanted your thoughts on this, and I'm not looking for a right or wrong answer:

Last year, when WTI was $100+, the following companies reached the following highs (approx): HSE $37, SU $46, CVE $34, and CNQ $49. Should we reach $80 - 85 / barrel, where do you think these companies would end up - in comparison of course to current pricing? They may be "raking it in" but do you think it will be reflected accordingly in the stock price?
Deal Fanatic
User avatar
Jul 19, 2003
8064 posts
708 upvotes
$RIG down to $18 now from $21+ and being a great investment the other week. Glad I'm out before the fall.


Crude Oil Jun 15 $57.34

This has gone to hell in a hurry.
Sr. Member
User avatar
Sep 10, 2004
687 posts
36 upvotes
STP123 wrote: Just wanted your thoughts on this, and I'm not looking for a right or wrong answer:

Last year, when WTI was $100+, the following companies reached the following highs (approx): HSE $37, SU $46, CVE $34, and CNQ $49. Should we reach $80 - 85 / barrel, where do you think these companies would end up - in comparison of course to current pricing? They may be "raking it in" but do you think it will be reflected accordingly in the stock price?
Very difficult to forecast stock prices 2-3 years out, other than to say I believe the quality companies will survive and will be trading higher.

As I mentioned before, the smart guys are using this as an opportunity to squeeze their labour force/suppliers and are still managing to increase production. When the turnaround happens, these guys may be just as profitable at $ 85 oil as they were at $ 100 oil. I think the market will see this in time, and they will be trading significantly higher than current levels. Currently the sentiment is still quite bearish. People are running from oil like they did from tech in 2002 and financials in 2009.

Keep in mind the large caps you mentioned didn't fall as dramatically as the smaller players so the upside will be limited relative to the minnows. I cant say they will be 1.25x, 1.5, or 2x higher; but I believe strongly enough that I have gone overweight oil. Im using very little leverage, so even if the market tanks again, I can ride it out.
Deal Addict
Jan 3, 2013
2109 posts
361 upvotes
Sidney
Anyone grabbing CPG at all at these levels? It just seems to keep going down, even being lumped in with the Alberta election which didn't even affect them. Analysts are raving about it more than ever (probably because their stock issuing frenzy has gone a bit quiet lately), but the stock just keeps tumbling...more so than its peers.

Top