[Posted on February 23rd, 2015 by Michael L. F. Slavin]
While those involved in oil investing may well be shocked by the sudden recent price drops in oil, for people knowledgeable in the market, these drops are to be expected. For those unaware, the United States has been in the middle of a tight oil boom that has shocked the world, with U.S. production alone now at nearly half of OPEC’s oil output. The production increase has finally caused a split in OPEC policy, caused by regional crisis in Iraq and Syria. Saudi Arabia has decided to double down on increasing oil production, with the hope of killing off smaller players in the market, including many of the tight oil players in the U.S. This time, however, many of those tight oil players are holding fast, meaning the price of oil could drop further.
Should Americans involved with oil investing be concerned? The general consensus, even among tight oil producers, appears to be “not really”. While U.S. oil exploration and drilling groups predict a slowdown based on a glut of supply, there’s good reason to believe that a sustained downward price spiral is unreasonable, largely because most OPEC member nations couldn’t survive it. Meanwhile, in some tight oil areas in the U.S., production costs have already dropped to as low as $65, meaning the American producers could withstand such a sustained attack.
In the midst of a budding price war, the current climate between oil producing nations is a short spurt in price drops which, long-term, would be unsustainable. But for oil investors, understanding the principle of buying, this is actually the best time to invest in oil, for a few reasons.
Buy Low, Sell High: Straightforward Investment Strategy
This is an interesting period in the oil market, where virtually all players are ready for a price war, particularly on the domestic side. This means they’re willing to tolerate losses to gain market share later. For a smart investor, this means investing in successful, stable oil ventures is actually cheaper than ever. This also means an investor has the best chance of a very solid return on investment.
But there’s another good reason to consider why such investment makes a lot of sense. That reason is that direct investing in solid, known, productive ventures gives an investor a greater chance to get a handle on how the specific venture is doing directly. This access means that they have a better grasp of when ROI will be achieved.
With such a positive outlook, what are the real pitfalls that exist?
The biggest one that exists for investors is uncertainty, not in oil generally, but in the stability of specific players in the oil market. Experienced companies that deal in oil ventures know how to maximize their efficiency without concern for price wars. Another point to consider is that tight oil isn’t the only oil investment in the U.S. – perfectly stable, traditional development wells also exist. For many oil development firms, such as U.S. Emerald Energy, investors have a unique opportunity to directly follow the progress of their investment – giving the ease of mind that things are developing as they’re supposed to.
With the rise of a possible short-term oil price skirmish, choosing experienced, committed firms in the US market will produce return on investment at a better price than ever.