Predicting the stock market is very difficult, but generally the ethos of buy low and sell higher, still prevails. These days, with oil prices remaining low, oil stocks are peaking the interest of investors.
Oil stocks can be viewed like real estate, you buy when the market is down and sell when it rises. But in order to do this right, you will need a solid strategy and a wealth of knowledge about the industry.
If you look at the fundaments of investing, it’s all about seeking out industries and companies that are currently selling low but have a strong potential to go up. However, it’s not like a corporation where price is driven by growth and corporate profits. Commodities like oil are driven by another set of variables like supply vs. demand.
Oil prices dropped as U.S. domestic production almost doubled. Further, all the excess oil supply had far-reaching effects on oil producing nations like Algeria, Nigeria, and Saudi Arabia. As a result, these nations have been actively seeking to generate revenue in emerging economies in Asia.
When the supply increases, oil sellers have to drop their prices, this, in turn, results in a decline of their profits and stock prices. As a result, a lot of companies have been forced to stop or limit exploration and production. The far-reaching impact of this can be seen in the loss of jobs and corporate bankruptcies.
At the same time, this situation has created a great investment opportunity. Why? Keep reading to find out.
As oil companies go bankrupt or reduce exploration, the supply of oil is shrinking. As a result, you can expect oil prices to rise as a result of lower supply. This will have a positive impact on oil stocks as oil prices and oil stocks tend to rise and fall together.
Both OPEC and non-OPEC countries are also hurt by low oil prices, so there is hope that the U.S. will cut back on domestic production. Further, OPEC members and Russia may freeze production to increase oil prices.
So it’s probably a good time to add oil stocks to your portfolio.
The demand for gasoline isn’t going to go away, in fact, it’s expected to keep rising. As demand from emerging markets also put pressure on the industry, everything points to rising oil prices in the near future.