In 1998 the inflation adjusted price per barrel reached an all time low of ~$12.50, so lets party like its 1999 ^^ My first foray into oil stock investing via some COP shares on the first day of Feb 2016
COP is the ticker, I got it at $38.something per share, with a small batch of shares payed for by some dividend earning I had saved up. ConocoPhillips is an oil company, an upstream mineral miner that divested off its downstream operations to Phillips 66 in 2012. The plunge in oil prices from 2014 to now caused the shares of COP to slip from over $80 back then to under $40 now. As oil prices recover, so will the price of these shares, they pay a decent dividend too :)
Oil prices will not stay down forever, and here is why.
1. Brilliant Americans have responded to sub $2/gal gas by buying gas guzzlers like its 1999
2. The low prices of oil have bankrupted many "new" oil field operations
3. OPEC's big players are suffering hard economic losses from the low oil prices
4. The demand for oil in China will soar when the Chinese economy starts booming again
5. We are using oil faster every year, but the earth is not making oil nearly as fast
Running out of Oil!
This tells me that the oil supply will shrink over time while demand will rise. There are more car buyers in Asia looking to buy a new car now then there are cars to sell them. We will run out of easy oil before we run out of people in developing countries in the market for a new car. Cars don't last forever too if someone forgot to explain that to you :P
The Oversupply Will End
Right now there is an oil glut, a massive oversupply, but the conditions that allow for it are weakening. Oil prices are not anywhere near their all time low of $12.50 per barrel. Some are calling for oil prices in the $20 range, but those prices are likely to be very brief in nature. The story of cheap oil even extends into the National Sovereignty Fund of Norway, where the price of oil affects the cash flow, largely driven by oil exports from Norway.
Boom & Bust
The story of oil is boom and bust, and right now the price is busted, down from over $90 per barrel just a few years back, the $30 per barrel of today is not going to stay. I think oil will double to $60 per barrel in 2017 and may even go over $100 by 2020, in just 4 years. That might seem like an eternity to the stock market, whose focus seems to always be next quarters earnings, 4 years is 16 fiscal quarters, where is the crystal ball........ lol
COP is Gambling for Me
This is me playing casino with money in the stock market that I can sort of not afford to lose. My bet is that oil prices will climb after bottoming out this year, and companies like COP that make most of their revenue from selling oil will make more money as the price of oil increases. I believe that COP will climb to over $90 per share in just a few years, as climbing oil prices multiply the revenue stream for their operations :)
Ethics ?
How could I invest in a dirty polluting company like an oil company? Why not? My tiny holdings in COP are more philosophical in nature due to the volume of shares that I now posses, lol. In its own way its my first official put my money where my mouth is hat tip to the American Petroleum Institute or API. I hope to more than double my money and sell my shares :) If that takes 2, 3, 4 or 5 years I do not care. I am investing for the long game anyway :)
The OPEC Prediction
OPEC claims that more than 90% of new cars sold globally in the year 2020 will run on gasoline. This is probably true for at least 3 really good reasons.
1. Low cost vehicles using old technology for developing cost sensitive markets
2. If you drain a gas vehicle of all fluids, put it in a nitrogen purged bag, the shelf life is amazing
3. Gasolines energy density, 12,000Wh/kg is about 20X better than lithium ion today
So lets say I am a poor person in a developing country in the year 2040, and I have never owned a vehicle before and neither has anyone in my family. Lets also say I have about $4500 to spend on a car and want a new reliable one for my family. The basic gas powered car is going to be my cheapest option, even though that same car is available with a hybrid drivetrain for $6000, a plug-in hybrid option for $7500 and a Hydrogen option for $8000. Cheap gas cars will by the hundreds of millions per year to people with very limited incomes, and lets face it, of Earths people, most of the 7 billion people all alive at the same time are not wealthy! Sadly poverty, and low income levels are common. This is why gas powered cars will sell really well in the future, even though much better technology will be available.
Clean Technology for the 1st World
Hybrid and Plug-in Hybrids will sell really well in advanced economies, little wealthy county bubbles in Europe, the USA, Japan, and some parts of Asia, Africa and the Middle East. In post modern economies where clean technology is pervasive, up to 40% of new cars sold by 2020 will be offered with a hybrid drivetrain option. Plug-in hybrid has already proven that it is better in the Porsche 918 spyder, BMW i8, and the new Acura NSX. The Tesla Model S long ago proved and continues to prove that high end electric vehicles can be far better than anything classical because of the instant torque, low NVH, regenerative range extending braking, high electrical power available to auto-pilot computers and other active driver assist and safety systems, lower impacts where it is used because of the distant tail pipe effect the grid produces, even where the grid power is made from coal power. BEV's have the lowest wheel to well energy consumption and emissions profile. The electric motor is far less complex than a gasoline engine, more reliable and far more efficient at converting its energy sources, electricity, into mechanical work to move a vehicle. If you have never test driven an electric car to feel the acceleration, do yourself a favor and go test drive a Nissan Leaf, BMW i3, or Chevy Spark.
Efficient, Cheaper, Cleaner Gas Cars
Some purely gas powered cars of the future are going offer really good fuel economy like the late 2016 Elio Motors. Using new lighter designs, new designed smaller engines, better aerodynamics, and friction reduction technologies, they will cheat the wind, slip through the air more easily, require less energy, consume less fuel, emit less pollution, and will do all of this while costing less than most cars today. That aforementioned Elio is said to be good for up to 84MPG on the highway and has a low base price of only $6800
A Cheaper Emissions Control
Platinum is used in the catalytic converters today, its high cost making those metal doped porous ceramic exhaust cleaners expensive. New catalysts based on iron, zinc, nickel, and copper will make catalytic converter of the future 400% less expensive.
Shared Platform Designs Lower Costs
Vehicle will become less expensive in relative terms because of engineering aimed at reducing costs! New manufacturing techniques based on 3D laser printing will make the plastic moulds, metal stamping moulds and some of the super expensive parts used in manufacturing less expensive. They will not print the cars using 3D laser metal power melting, instead many iterations of high technology tools used in manufacturing can be refined over and over again with rapid design tech offered by 3D laser metal power printing. The 3D printing in plastic explosion of today is the technological grandparent to the technology of the future I am speaking about in low cost high tech manufacturing. These new manufacturing tools will allow automakers to make more cars with fewer materials with better margins at lower costs.
Further costs savings in manufacturing of future vehicles will be achieved using the 20 year Russian vehicle design cycle, where a reference design is perfected and then reused over and over again, only refined over time, rarely ever redesigned. This means the overhead costs for development of a given model will be minimal, resulting in a less expensive vehicle, ubiquitous spare parts, and something I also call the Toyota Corolla effect, millions of the same vehicle, all the world over.
Shared platforms within a given manufacture will allow auto makers to give car buyers better technology at lower price points. Think of you tablet computer from 2015. Now think of the OEM navigation system in most cars from 2015. The automakers will eventually give up on designing their own AV system and use something like an iPad or Samsung Note for the dash computer of future vehicles. This will create compelling vehicles with a fluid touch screen UI that is a pleasure to use, a vast departure from the glitchy dim half baked car infotainment systems of today. In one year apple can ship something like 20 million iPads, the automakers do not ship that many vehicles in a given model. This means the automakers stand to benefit by integrating an iPad into the dashboard of their vehicles, in a custom form factor using the vehicles power system and a vehicle specific mounting and integration setup. Besides, Automakers, after all, are system integrator manufacturers that combine products and technologies from a lot of companies into a given vehicle platform.
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