Oil and Gas Prices: Expert Investors are Looking at the Past to See the Futures

Read through the promotional material for a good number of financial products and you will find a wealth warning telling you that past performance is not a guide to future returns.  Some investors focused on items like oil and gas prices might disagree with that observation.

Investment companies are understandably keen not to make any rash promises.  After all, they want you to put your money with them based on their expertise.  However, any private investor is free to do their due diligence.  Someone who can look at past events and apply that knowledge to the future can come out ahead.

This seems to be the case with some savvy oil and gas investors.  This group often believe that vital clues could be gleaned and trends followed, as a route to profits. Here is a look at what aspects of past performance some experienced investors are looking at in order to determine their current investment strategy.

Following the cycles

The oil and gas industry is very cyclical.  Time and time again, we see scenarios repeated and oil and gas price cycles responding in a similar way now to how they have done in the past. It is not that simple of course because geopolitical risks change and the shale oil boom in the U.S has definitely been a factor that has had an influence on crude oil prices.

Markets seem to react much the same way even if the news cycle and circumstances are slightly different each time.

Basically, oil and gas prices tend to head north when supplies fall short of current demand levels, before falling back down again after a brief spell at the top of the current cycle, when new supply sources are announced and growth demand falters.

If you look at charts for the last 50 years or so you can see global oil consumption has steadily risen at a steady trajectory, but crude oil prices have demonstrated a number of peaks and troughs within that same period.

Moments in time

If further proof were needed that oil and gas prices are cyclical you only have to look at certain events in time or periods where prices clearly respond in a positive or negative way to events and market conditions, as well as supply and demand factors.

Oil prices fell off the ledge around 1986, for example.  That decline coupled with price volatility stuck with us throughout the 1990’s.

By the time we got to 1998, low crude oil prices were really starting to bite.  We witnessed a flurry of major oil company mergers on a grand scale. The result of this consolidation in the industry was that these new mega-companies were financially leaner.  This meant they were spending less capital overall and were able to prosper from an upturn in prices.

Learning from the past

There are numerous different ways to play oil available to investors these days and if you read https://oilandenergyinvestor.com/special-reports-video/my-bold-2017-oil-price-forecast-and-the-most-unusual-way-to-play-oil/, you might get some more ideas on that front.

If you want to time your investments with the price cycles, the past provides a clear trend.  This might just help predict with what will happen in the future and when it might happen.

The last six major oil price cycles have all tended to last for about 24 months max. If the same cycles are going to be repeated again going forward, having some idea of where we are in the current cycle could make a substantial difference.  A strategy like this could come into play if you are shorting oil futures, for instance.

The impact of renewable energy

There have clearly been price cycles that have repeated themselves with a great deal of regularity in the past.  Still, nothing stays the same forever.  You could argue that the future of oil and gas production is under pressure and set to change when you consider the continued growth in renewable energy.

Oil and gas are likely to continue to remain important commodities for the next couple of decades at least.  With this in mind,  investors want to know if history will repeat itself for the foreseeable future?

The answer to that question depends on how much faith you have in the predictable price cycles we have witnessed in the past.

Editor note: This was provided by Thomas Kent.  Thomas is an avid stock market and money watcher.  He loves to share what he has learned by posting online. Look for his articles on a number of personal finance and investment blogs.

Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.

Why You Should Pretend Gas Is Still $4 Per Gallon

Michigan has some of the higher gas prices in the country, and the area where I live generally has some of the higher prices in the Metro Detroit area, so when I’m seeing prices around $2.69, I know that gas has gotten cheap.  I’m sure you’ve seen it too, right?  Good.

It’s interesting, though, because gas has been under $3 here for barely a month, and already people act like they’ve forgotten everything that came along with higher gas prices….that will return, probably sooner rather than later.  Consider:

  • Gas Guzzler Sales On The Rise – With gas prices having been on the decline for a few months, auto companies are reporting that bigger cars, trucks and SUVs are seeing increased sales.
  • Return of Poor Driving Habits – I’ve read various articles about the lower prices, and inevitably there are social media comments along the lines of “I love the lower gas prices.  Now I can drive faster again!”
  • Call for Increased Speed Limits – This one boggled my mind.  Someone in the Michigan legislature is working on a bill that will allow the maximum speed limit in the state to be raised from 70 MPH to 80 MPH.

Gas Prices Will Not Remain Low Forever

mb-2014-12gaspumpPeople love the idea of lower gas prices.  I’ll be honest, seeing the prices slip below $3 was something I’d completely forgotten about.  The $3 limit was a threshold that I figured might never be breached again, not when the average yearly prices had been steadily rising for the last few years.

Now that oil is at comparatively low prices and output is higher, people seem to think that this will be the new norm.

I have news for you: It won’t.

At a certain point, everybody that gets hurt from low prices will start to realize that they don’t like it.  Oil companies will make less profits.  Oil producing countries will see less tax and other revenue.  Gas station owners will continue to see margins erode.

Guess what happens when profits shrink?  All those affected start to work on raising them back up.

Right now, political interests are allowing for oil prices to stay low which is feeding the whole thing, but as soon as those political interests start losing steam, then profits will take center stage.  And, since money and profit are pretty important drivers in the grand scheme of thing, believe me when I say that profit will take precedence.

Charge Yourself Higher Gas Prices

When gas prices start climbing, you’ll want to be prepared.  The best way to accomplish this is to charge yourself the same price for gas that you used to pay.  If you buy 20 gallons per week, and the current price is $2.65, that works out to $53 spent on gas.  Back when prices were $3.50, that would have cost you $70.   That’s a savings of $17!  Pretty cool, right?

The idea behind charging yourself more is that you take the $17 and apply it to something that won’t hurt you once that money returns to paying for gas once the price goes back up.  What are some of the things you can do with it?  I’m glad you asked!

  • Apply it toward debt – If you’ve got credit card debt or other debt, apply the extra money to that amount.
  • Save up for something – If you’re debt free, then save the money up.  You can save toward an emergency fund, or a travel fund, or something else where savings will come in handy, but that won’t negatively impact you once the savings opportunity goes away.
  • Give – You can give the extra money to your favorite charitable organization.  I’m sure they would appreciate the extra funds for awhile.

Things To Avoid Doing When Gas Prices Are Low

You can tell that I firmly believe that the lower gas prices are temporary.  I could very well be wrong on that, but I’m going to be safe and just stick with my assumption.  If you believe the same thing, here are some things you most certainly want to avoid while gas prices are low:

  • Buying a bigger car – There are people now who are car shopping, and figuring out their gas usage based on current prices.  This works out OK as long as prices are up, but if they use a lot of gas and suddenly the price goes back up $1 per gallon, they’re going to be in trouble.  Any car you by should include gas costs as if they were back where they were before the decline.
  • Buying or upgrading something else – If you are saving the $17 per week I hypothetically laid out above, you could save around $70 per month with lower gas prices.  Some people will figure that gives them extra spending money and they’ll start doing just that, spending the money.  Except what happens when that $70 needs to go back into the gas pump?
  • Taking on a new monthly payment – Even worse than just spending the money is applying that towards a new monthly payment, one that will likely still be there when gas prices go up, at which point you’re really going to be hurting.
  • Changing your driving habits – When gas prices go up, I guarantee that these two things will happen: People will complain and you’ll start seeing people talk about changing driving habits to get better mileage.  You’ll see tips on driving slower, not accelerating so fast, and all the others that come with it.  My point is that you should do these things no matter what!  Changing habits back and forth just because of the price at the pump doesn’t really make sense and it never leads to long term positive changes anyways, so just do yourself a favor and drive efficiently regardless of the price of gas.

Readers, what are you paying for gas compared to a year ago?  What are you doing with the savings at the pump?  Do you think the prices will last or are they just a short term thing? When do you predict gas will go back up to $3 per gallon on average?

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Would We Have Been Better Off Getting A Roof Before We Needed One?

Our roof is definitely due for replacement this year.  Even though we didn’t move into the house until 2007, I know that the roof was installed sometime in 1998.  Some of the building inspection stickers are still on the electrical box in the basement, and it indicates that the final inspection of the house was done in March of 1999.  Since it takes a few months to build a house, I can safely surmise that the roof was installed sometime likely in the summer or fall of 1998.  That would make the current age of the roof just under 15 years.  Since over half of the houses in the subdivision have had their roof replaced, it’s reasonable to think that ours is not out of the ordinary considering the grade of shingles likely used

I’ve been starting to get some pricing and I am not liking at all what I’m finding.  Just this year alone, the price of shingles have gone up roughly 9%.  Looking at some chatter on Google in previous years, this has been pretty much the standard increase over the last two to three years.

This sucks because I had started saving for our roof when we moved into house in 2007.  Based on prices I’d heard at the time, I figured saving $1,000 per year was a safe bet with the hope that the roof would last until 2013 or 2014.  Considering the costs associated with moving, we didn’t set our first $1,000 aside until 2008, but have been saving roughly at that pace since then.  That leaves us with around $6,000, which according to everything I heard, would have been plenty even two or three years ago.

Now, not so much.

With the increase in shingles over the past three years alone totaling roughly 30% over those years, I now look at it and figure it might have actually ‘saved’ us money to get the roof done prior to that.

If I make the assumption that the labor charges are a mark up of the materials cost, then what it tells me is that over the last three years, the price has gone up by 30%, where the useful life of my roof has diminished by its last 20% (three years divided by the fifteen year life that it got).

So, had I gotten a new roof when there was still 20% roof life, I would have saved 30% in total costs.

Again, these are rough numbers.  It’s not like I got any quotes, but talking to family members and neighbors who got their roof done in 2010 or right before, it’s clear that the prices for what I’m getting today would have been drastically cheaper then.

Hindsight is 20-20 so there’s no way I could have anticipated the cost of the roof.  Most of it is attributed to the rising cost of, what else, gas prices.  Apparently many of the same materials and chemicals that go into roofing are tied into gasoline and oil, so the average increase of annual gas prices is directly tied to the increase in roofing.

This sucks because now the $6,000 that we’ve saved looks like it won’t be enough to cover the cost of a new roof, at least from what I’m seeing.  We have cash set aside for other things, but I really was hoping to continue our savings goals elsewhere, where now we’ll likely have to shift things around that will impact things in a negative way.

It’s also worth pointing out that even had I had some crystal ball and would have seen that getting a new roof three years sooner might have saved money, in the end it probably wouldn’t have.  First, we would have only had $3,000 put aside at that point, so we most definitely would have had to find money from somewhere else, and probably more money than we’ll have to look for today.

Second, we plan on staying in the house for a while, to the point that we would likely replace the roof we’re about to replace, and the early replacement would have taken three years off the life at the end, so it would have gotten us someday.

Rising fuel prices are one of my pet peeves, and to hear that the increase in the expected cost of our roof is tied to this makes me just as angry, probably more so given the extra costs runs in the thousands versus the $0.20 cents per gallon that gas prices often represent.

In that three year time frame since prices started jumping dramatically, guess how much my salary has gone up?  Exactly zero.  While I’m working to change that, it stinks because even saving that $1,000 becomes more and more difficult when prices elsewhere rise and your income doesn’t.

I’m sure most people out there haven’t been so lucky as to get a 30% increase in rates, and while I don’t think the people associated with the roofing industry are rolling in cash because of this, you can bet that someone somewhere is making good money off this increase.  Someone who already has more than enough money, if I had to guess.

Readers, have any of you had to get a new roof over the last couple of years?  Have you gotten sticker shock due to the rising shingle prices seen over the past few years?

Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.

I Believe Consumers Can Affect Gas Prices

Winter is typically the time of year when we use the least amount of gas.  Travel is down because people aren’t doing the amount of vacation travel that happens over the summer, meaning that gas consumption is down.  Since demand is lower, this usually means that the winter sees the lowest gas prices of the year.

Not this year, so far!

I’ve noticed a trend that gas prices start climbing in advance of the summer season earlier and earlier each year.  It used to be that prices would start rising in April and peak around Memorial Day, then level off and start sliding down a bit after the Fourth of July.  The earlier part of those trends moved back a couple of weeks, and this year is no exception.

Gas prices here in Michigan started a pretty big upward trend around the middle of January.  Our normal station bottomed out around $3.29, and over the last month has gone up sixty cents!  That’s right, prices earlier this week stood at $3.89.

Even though we don’t typically spend a lot on gas since I have a very short commute to work (6 miles total each day) and my wife stays at home, limiting her mileage, I still keep an eye on gas prices, and I get very annoyed when I see stations raising their prices to the degree that they have.  I simply have no tolerance for prices jumping up 5-10% at a time (notice that when they do fall, it’s never more than 1-2% at a time?).  Last week, I filled up at $3.49 and when I drove home, the station price was at $3.79.

Virtually nobody else gets away with price flucuations like this.  Imagine if the government were to raise your taxes and adjust those to this degree.  Chaos!  Imagine if your grocery bill went from $75 to $90 over the course of a week for the same basket of items.  No way!  What if the new car you looked at last week for $30,000 was now stickered at $33,000 and the dealer just said ‘Eh, what are you going to do?’  I don’t think so!  And the best one of all, what if your boss came to you and said, here’s a 20% raise.  Enjoy it, but we’ll probably take it away.

Not in a million years!

None of those things happen but the gas prices going up and down and all over the map is somehow supposed to be perfectly acceptable.  It drives me crazy and is one of my hot buttons.  If I see the price go up and up, the first thing I’ll do when I get home is announce today’s price increase.  Then, I’ll go check Facebook or Gas Buddy forums and find…nothing.

Apparently, I’m the only one outraged these days.  Or am I?

It made me stop and wonder, is there any way that we can affect gas prices?

Don’t buy gas on Tuesday

Back when gas was first going through its big run-up a few years ago, people actually were outraged, and at least once a week, I’d get an e-mail proclaiming ‘DO NOT BUY GAS ON TUESDAY!’ Or whatever day happened to hit someone’s hot button.  The rationale is that a day of no sales would drop demand so quickly that prices would have to drop.

I’ve always thought that these were completely absurd.  First, people need gas and are just going to go get gas when they need it, more often than not.  Following this strategy would mean that people would have to fill up earlier than they might otherwise (not likely) or that they’d chance running out of gas (don’t think so).  Besides, nobody did it!  I’d drive by gas stations on so-called ‘Do not buy gas’ days and I’d see as many cars filing up as any other day.

Stop Driving

People say that one way to push down the prices are to drive down demand.  Do this by driving less.  Again, this one sounds great in principle, but it’s probably not going to happen.  When people write stuff like that, they must assume that millions of people get in their cars every day and aimlessly drive around for miles at a time.  If this were the case, then we could all at once cut out these unnecessary trips and gas prices would fall.

Unfortunately, that’s not the case.  While some of our driving could be curbed, the fact is most driving is tied to activities like going to work, going to school, going to the grocery store to buy food for your family, or other trips that simply can’t be cut off.  Delayed? Maybe, but not cut off.

Drive with better gas mileage in mind

Every time gases cross a mark (if they get to $4, just watch these e-mails start), you’ll get e-mails and blog posts talking about how we need to drive to improve our fuel economy.  Don’t gun it.  Coast up to stop lights rather than brake, so that you can perhaps not have to come to a stop, reducing your usage.  Drive 60MPH instead of 70MPH.  We’ve all heard them, but the fact is that people drive as they drive, and any changes like this are only temporary.  You’re not going to turn a speeding, tailgaiting jerk into a Sunday driver just by sending an e-mail.  Not enough to affect gas prices anyways.

Buy more fuel efficient cars

We’ve been improving the fuel economy on the average car for years, but still gas prices have not fallen.  Besides, reports now show that consumers are buying more full size pickup trucks than ever before, so while some focus on economy, by and large, I just don’t think this is a priority.  You’re not going to see the roads in the United States resemble those in Europe (filled with compact cars) anytime soon.  Again, good in theory, but a non-starter from a ‘can we really impact prices’ level?

My Idea: Stay Out Of The Gas Stations

Here’s an idea I’ve been throwing around in my head as the only possible way that I can think of that might actually impact gas stations.  Stay out of the stations!

Note, I didn’t say don’t go to gas stations.  I said stay out of them.  As I outlined above, you still need to buy gas, so continue to do so. But, where I’m going is to buy gas and then leave.

See, it’s a well known fact that gas stations make a majority of their money not from actually selling gas, but they make it from the convenience stores attached to said gas stations.  No gas station is every built these days without a big store attached.  Inside you can find your snacks, your soda, your coffee.  You can get newspapers and magazines.  Need washer fluid or some extra motor oil?  No problem.  Gum, candy, lottery tickets.  You bet.  Even beer and wine at many stations depending on what state you’re in.

It’s all very convenient, but what if we cut off that profit source?

See, gas station owners are well known for saying that they have no control over prices.  The prices are set by the distributors or parent company, especially for company owned gas stations.  I’ll focus on Speedway (or Speedy America depending on where you live) as an example, because they own all of their gas stations.  Speedway is the biggest culprit for raising gas prices with big gaps.  They don’t even pretend to wait for the next batch of gas to come in. They will see that the wholesale prices are going up and they’ll order all stations to do an immediate increase.

Don’t tell me that these stations aren’t making money.

What happens then is that gas stations surrounding Speedway will raise their prices as well.  At least where we live, Speedway is the first to raise prices 90% of the time.  Count on it.

Yet, every time I go in Speedway for any reason, I have to wait in line.  Not for people to pay for gas, but for people buying hot dogs and chips and all the other stuff I mentioned above.  What happens if those people all stopped going in?  What if people went to McDonalds to get their coffee? Or to the drugstore to get their newspaper?  Or…well, you get my point.

See, stations owners might have no control over gas, but I don’t think they actually do much about it when the prices go up.  If customers complain, they shake their heads and say that there is nothing they can do, but do you really think they get on the phone and argue the price increases?  No.

Do you think they might if they saw their convenience store profits cut in half?  I think maybe.

Do you think Speedway, if they saw their coffee sitting their going bad on the warmer instead of being sold, would be as quick to raise prices if customers stopped going into their stores when they decided upon a 30 cent increase for no particular reason?

I’m not going to say yes with absolute certainty, but I’m thinking it could have an effect.

See, if gas stations owners aren’t making money on gas, they really don’t care.  But if you hit them where it hurts, in the store, I believe they would actually take notice.

So, what do you say?  Can we start a movement to speak with our wallets and take the gas station convenience stores off of our shopping list when prices keep spiking up?  Or is my thought another waste of time just like ‘Do Not Buy Gas On’ days?

Copyright 2017 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.