12 January 2015

Fuel - Fluctuating with the Tide

It's strange. When the price of oil was in the century mark, everybody was feeling the pinch as the cost of business went up. The masses felt the pinch with the rapidly spiraling cost of petrol for car owners and the cost of electricity to power the home. It was all doom and gloom, with inflation eating into the bottom line for everyone.

This situation gave rise to higher cost means of recovering energy sources becoming viable. And so we then have shale gas, particularly in the US. It has grown so rapidly that it is shifting the US from a net importer of energy to becoming a net exporter. Suddenly, OPEC and Russia no longer hold the only big strings that pull the puppet.

And now we have an oversupply. The collapse in oil price has been rapid. Along with this, stocks in the oil and gas sector are dropping day by day. And yet, many of these companies are still generating growth in revenue.

Oil price go up, gloom! Oil price go down, doom! What a strange world.

The simple truth is that the demand for energy can't possibly get any less. The world continues to grow. As economies develop, surely the demand for energy can only grow? If the reverse is happening, we must be moving back to the stone ages.

With this, my hypothesis is that eventually a tipping point will be reached, and things can only return to the uptrend, be it the global economy or the cost of energy.

As a long term investor, such short term fluctuations are irrelevant. In fact, it is another opportunity knock. So are we accepting the knock or taking the knock and continue to watch?

I finally bought into ExxonMobil, after having bought Chevron a year back. Their prices continue to fall. But do we see the price of fuel at the pumps falling in lock step by the same proportion? Hmmm ...

Meantime, I should keep a closer lookout on flights for overseas holidays. It should be cheaper since aviation fuel is a big ticket cost item. Upgrade to Business Class anyone?

Disclaimer: Do your own due diligence! We all have different risk profiles and considerations.  

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