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oldfart65 (38.41)

Don't bet the ranch on energy sector!



October 20, 2013 – Comments (2) | RELATED TICKERS: KMP.DL , FI , CLB

Energy sector is booming and billions are being invested in it.  However, a generation ago this was a sector that had a well earned reputation for both booms and busts.  First, it is an exceedingly complex industry which has dozens of different parts and I will be the first to admit that I do not have a deep understanding of all of it's complexities.  There are upstream and downstream segments, drillers, chemicals, transporation, distribution, consulting, oil pipe,etc. each of which have different risks & rewards criteria. 

As a former banker, I called in Texas on the non-energy  companies as well as banks in the mid-80's (a huge BUST time in oil & gas).  It caused the 5 largest banks in Texas (which were among the 20 largest banks in the country at the time) to be bought by NY & Cal banks to avoid disaster.  Old timers will remember Texas Commerce, Republic, Interfirst, First City & Mercantile which all had to be rescued and there were others in Oklahoma.  These were naturally big lenders to the energy sector and the state was even more dependent on this sector in general than it became later.  

Some say oil will decline to $50/bbl over the next 10 years in the U.S.  There is a good article in Forbes about which fields will become economically unviable at different prices, which is a must read! (What would happen to current fracking activity and subsequent booms generated if oil $/bbl were to drop-1/8/13)

  I am NOT saying to avoid investing in this positive news for the country but be cautious and don't invest a substantial portion of your portfolio in this high risk sector.   

2 Comments – Post Your Own

#1) On October 20, 2013 at 11:33 AM, awallejr (35.95) wrote:

That had a lot more to do with a recession followed by a housing crash followed by a National (not just Texas) S & L collapse.  Well there was Enron too I suppose.

If I had a nickel for every prediction I heard for oil dropping to $50. The days of poking a stick in the ground and finding oil are over.  Deep Sea drilling is expensive.  Costs $500,000-$600,000 a day just to lease the rigs.

Should prices drop so dramatically wells will simply be shut in forcing the price back up.  When Cushing oil finally hit the East Coast you would have thought Brent would drop dramatically.  Instead you saw WTI rise dramatically.

I am not quite sure what will happen to nat gas prices once we start exporting it in earnest the next few years.  My guess higher local prices.

I do believe that solar is the ultimate endgame.  But we aren't there yet.

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#2) On October 21, 2013 at 6:52 PM, GirlsUnder30 (31.93) wrote:

Fossil fuel usage is still rising on the whole and burning is not the only use for it. I tend to see things like awallejr but what do you guys think about precious metals, have you read this? 

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