I’m not an expert in oil markets.
But my hedge fund ex-boyfriend is. And while he and I never got beyond a wild weekend in Vegas, we always remained friends.
Because of this friendship, I’ve been able to make a lot of smart trades based on his outlook. He’s kind of like my person oil market analyst. And because of him, I started shorting oil sometime around the end of July with a Short ETF, (NYSE: SCO).
If he wasn’t married, I’m pretty sure I would’ve taken him back to Vegas for another weekend. It’s the least I could’ve done for his advice to short. But a hearty “Thank You,” worked just as well.
In keeping with one of my many rules for trading, I’ve officially taken my chips off the table.
After doing a fair amount of due diligence, I’ve come to the conclusion that there’s more risk than potential reward if I wait around to rake up a few more dollars.
Sitting on gains of about 130%, I see no reason to stick around for the after-party.
When $60 Oil is Over
With all this recent destruction in the oil space, we are starting to see more and more of the smaller producers and developers struggle. Some are about to be acquired and some are going to become road kill.
This is actually a good thing because the market has helped clear up any doubts about which companies are viable and which are not.
Penny stock traders would be wise to start sniffing around for some good bargains. But be careful, as not all oil producers are worth the effort.
The key right now is to find companies that can survive for long periods of time with $60 oil. This immediately kicks oil sands companies to the curb. At least the penny stocks in this sector.
The success of oil sands is directly tied high oil prices. There’s no point in spending the equivalent of a small country’s GDP to squeeze oil out of sand when oil’s trading at $60.
Some of the shale producers can survive at $60. Some can go even lower. This all depends on where the properties are situated and how far along development is. In other words, there are a number of companies that trade for a few pennies, but they haven’t actually developed anything yet.
Although shale producers can operate successfully at $60, that doesn’t mean they’re going to be in a rush to develop new sites right now.
At this point, if I’m ready to take a chance on a tiny oil company, it has to be operational and generating revenue. It doesn’t have to be profitable right now, but it does need enough capital to get through mid-2015, when $60 oil will be a thing of the past.
In the meantime, I’m going to back away from oil stocks for awhile. It’s getting too hot in this kitchen. I’ll just take a few months to enjoy these cheap gas prices and make fun of all those people who are rushing out to buy gas guzzlers because they think cheap gas is here to stay. Suckers!
– Jennifer Clark