If you're worried about U.S. oil stocks, today's essay is for you...
Over the past few months, the price of oil has crashed. Meanwhile, many oil stocks are down double digits.
That's a big loss. But the downturn is creating a great opportunity for investors...
As regular
Growth Stock Wire readers know, new drilling techniques have allowed the U.S. to tap into vast oil and gas reserves locked away in shale.
As a result, U.S. oil production has increased 63% from the low in 2008 to today. That's a massive increase in a short period of time. And as we've shown in these pages before, these technologies
will help U.S. oil production keep soaring.
But rising supply of oil and
a strong U.S. dollar have caused the oil price to fall recently. West Texas Intermediate (WTI) crude oil has fallen from around $106 per barrel in June to about $83 per barrel today.
This has caused investors to flee oil stocks. The
SPDR Energy Select Fund (
NYSE: XLE,
Stock Forum)
– which holds big oil producers like
Exxon Mobil Corp.(NYSE: XOM,Stock Forum) and
Chevron (NYSE: CVX,Stock Forum) – closed down 18% on Monday from its June high.
What investors are forgetting is that oil is tremendously cyclical. That means its price moves in waves. It goes through cycles of boom and bust. And the best time to buy oil stocks is when everyone hates the oil sector.
You can see this in the below chart of the price of WTI crude and XLE...
In the past five years, the price of oil was in "bust" mode five times (the red arrows) due to temporary fears of oversupply. But after each time, the world realized there was still more demand for oil than supply. Oil prices went on to boom an average of 39% (the green arrows show the peaks). Oil stocks followed the oil price and soared an average of 37%.
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