If the recent run up on oil company stocks is caused by momentum, what are the chances that prices will fall once the exuberance is over?
(yahoo finance 10-17)
Many analysts believe speculative investing is the real culprit behind oil’s 11 percent rally over the last week, arguing that supply and demand fundamentals do not support prices near a barrel. Traders see technical signs in the differences between current and future oil contracts that suggest money continues to be plowed into oil futures. Those signals spark new buying that pushes prices even higher.
"I think the market has been trading on momentum," said Antoine Halff, head of energy research at Fimat USA LLC.
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Depends on how you look at the energy sector. In the short term, yes, oil is overpriced and as the foreclosure/credit problem hits (no, it hasn’t really hit yet), market turmoil will spread to the energy sector, primarily oil. Oil stock is high priced primarily because of stock buy-back programs, not because of product demand. I think that is the key issue with oil stock price right now.
But in the long term, oil is still a pretty good bet. Several million cars, trucks, boats, and air planes, along with lawnmowers, heating oil, and the plastics industry, will demand petroleum products for quite a few years to come. The key, though, is that this should be a long term investment with full dividend reinvestment. (Long term defined as being 10 years or longer.)
Now is not a good time to buy oil stock as it is very, very expensive. Get the forms for dividend reinvestment plans and have them filled out, but wait until the market corrects or crashes. Then buy when prices are cheap. After that, put the statements and account info in a safe place and forget about it. Given enough time, you should do pretty well.
Well the psychological limit of $100 a barrel is not too far off. So my best guess is, that is what we will see – if not now, next driving season (ie summer) for sure.
Follow the situation in Turkey, as it seems to be one of the main culprits driving up the prices. Also, if you follow the standard oil cycle (up in the winter, down in the spring), its not too far fetched to think that the prices can keep climbing.
Oil still has a ways to go to the upside IMO.
I had posted a question a month or two ago about some oil stocks… oil was at $63… someone responded with "dude, you missed the boat, oil isn’t going any higher"
Not anytime soon. Oil prices at 100 = recession. We dont need this, how about we get some peace in the middle east so we can make some money in the market.