Buy signal for Oilies?

[TUK020]

I was reading over the weekend that the Saudi sovereign wealth fund had made major forays into the western equity markets to pick up bargains.
What caught my eye was a significant purchase of BP.

The country with the biggest influence over the oil price has just placed a bet on a company whose fortunes are tied to the price of oil.

Moderator Message:
Moved from HYP-S to Oil & Gas & Energy (Sector & Companies) to keep it on-topic. - Chris

[TUK020]

I was reading over the weekend that the Saudi sovereign wealth fund had made major forays into the western equity markets to pick up bargains.
What caught my eye was a significant purchase of BP.

The country with the biggest influence over the oil price has just placed a bet on a company whose fortunes are tied to the price of oil.

Moderator Message:
Moved from HYP-S to Oil & Gas & Energy (Sector & Companies) to keep it on-topic. - Chris

[****]

I run a high yield portfolio (not capitalised) where I am looking to make practical decisions on buying and selling, topping up, which sectors etc.
It is not a High Yield Portfolio (as in a Bland Annuity Replacement), because I do things like include ITs for additional diversification, I top slice rather than hold forever, and I try to think about what is happening in the economy rather than trust to Strategic Ignorance.
The above comment was hoping to seed a discussion on the attractiveness of Oilies for top up versus other sectors right now. It is the sort of potential insight that I would appreciate reading when making top up/rebalancing decisions. But I wouldn't know to look for it on the Oil & Gas board in advance of it being made.
It doesn't fit/would offend purists on the HYP-P board for all sorts of reasons - call it timing the market, strategic ignorance etc etc.
I have stopped posting things like this on the HYP-P as I do not wish to offend, and was starting to use High Yield Strategies as the alternative.

Right now, I am trying to decide whether to allocate funds to topping up RDSB or to some international ITs. I'm also trying to work out whether I should exit or topslice AstraZeneca which is a bit toppy. Does anyone esle struggle with these sorts of decisions? Does anyone else know a forum where we can discuss these sorts of issues?

[Dod101]

Right now, I am trying to decide whether to allocate funds to topping up RDSB or to some international ITs. I'm also trying to work out whether I should exit or topslice AstraZeneca which is a bit toppy. Does anyone esle struggle with these sorts of decisions? Does anyone else know a forum where we can discuss these sorts of issues?

Responding to your points, it depends as always so much on what your aims are. Presumably income. After the cut in the dividend for Shell it might be good for a top up but I am going to leave my holding well alone (not that I do any topping up anyway, at least not with new money) Shell will probably resume dividend increases but that absolutely depends on the oil price seeing a sustained increase. Fundamentally it seems to me that oil is a bit like tobacco; a dying industry, or at least yesterday's business.

I hold AstraZeneca and sold some when it reached the dizzy heights of £70 and look what has happened since. I am simply going to keep it now and see what happens. It is to some extent a gamble on finding a vaccine and so on , but they have a lot of other stuff going on as well. Personally I would go for your international IT.

I think we all struggle with the sort of questions you are wrestling with but my default position is to do nothing.

[***]

Dod

[dspp]

Tuk, et al,

1. I have tidied away all sorts of "should this board or that board be used, etc" commentary/asides. Please just drop that subject everyone. There are some [***] where I have done a bit of nip and tuck, and some vanished posts that did not help the discussion.

2. Regarding whether to buy in to RDSB / BP / etc as oil majors at this point in the cycle ....... here are my 2c/worth,

a) Ordinarily it might be a good time. Shale is pretty much crushed. KSA sov wealth has given a strong buy signal in their own investments into the oil majors. Yet oil majors are significantly beaten down.
b) But it would not be without risk.
c) Personally I bought last time they were this low, and figured that the cycle would go on longer. That means I have not made as much as I would have done if I had sold more earlier. In point of fact I top-sliced from 28% of portfolio down to 21% a few years ago, but have been caught out by this revaluation which has beaten me down to 16% *.
d) The main risks are:
- i) Renewables wedge drives faster and deeper into oil/gas;
- ii) Low interest rates and short memories lead to another go at shale;
- iii) Macro economic cycle could be L-shaped depression rather than V-shaped recovery;
- iv) A sector perennially exposed to political risk.
e) Personally my own call is to continue to hold my overweight oil majors (16%) but not to increase them. I figure that renewables are now taking about half the annual increment in energy production (c.1-2%), which has therefore reduced but not yet eliminated longer-term demand factors. Within a few years that will have gone, but there is still c.7% annual reservoir declines to factor in and it will be about another decade until that renewables wedge is taking all that 7% weight. The KSA (and Russia, indeed all of ROPEC) need $40-$50 to balance their country budgets, and that is a very cash-generative price for the oil majors. So there is more likely to be a price spike or two up above that, than down towards the $20. So on balance I decided to hold for the time being.

3. But I am often wrong in these things. So if anything my ostensibly sensible rational commentary should be used as a warning !

Regards, dspp

(* So my oil major holding had 1/3 wiped off its value, as will become clear when I get my end-year portfolio numbers up. That's the good news - you should see my HUR holding for the bad news )

[richfool]

Another risk must surely be that there is a breakthrough in the discovery and provision of alternative energy sources, noting that the world is striving to find such alternatives and the pressure to move away from fossil fuels.

[Urbandreamer]

d) The main risks are:
- i) Renewables wedge drives faster and deeper into oil/gas;
- ii) Low interest rates and short memories lead to another go at shale;
- iii) Macro economic cycle could be L-shaped depression rather than V-shaped recovery;
- iv) A sector perennially exposed to political risk.

These facts are well known to the management of the big oil companies. They all seem to be trying to mitigate them to some degree. I own RDSB and have bought more since the dividend cut. I am hoping that they don't increase the dividend when oil consumption and prices return to normal but instead invest in alternative income streams.

For example Shell does provide electricity. They have 3% of UK market share and it's entirely generated from renewables. They also provide electricity in the US, though less of that comes from renewable sources. The issue is that it's such a small part of their business that it doesn't even make the accounts in the annual report. The ROCE for oil has made it difficult for them to justify significant investments in non oil business in the past, despite obvious future trends. The current low price starves them of funds to invest, but makes it far easier to justify such investment.

Non of us is I think old enough to remember Shells original business, but it wasn't oil. The clue is in the name. They sold shells.

Ps richfool might find this link interesting.
https://www.greentechmedia.com/articles ... en-project

[richfool]

Ps richfool might find this link interesting.
https://www.greentechmedia.com/articles ... en-project

Thanks for that link. Indeed that is an example of how science is striving to find alternatives to oil. I suppose the question here is will the major oil companies be involved in whatever the new solution turns out to be? Whilst Shell is involving itself in some possible alternatives, investors in Shell will have to hope that Shell will be involved with whatever the solution turns out to be, and profitably so.

[TUK020]

OK, so this feels a slightly odd place to be updating on my portfolio, but here goes.

Each of the trades represents something like 1% of my total portfolio.
I have used up some of my dry powder to make 2 buys, and then one buy/one sell.

I have top sliced about a third of my holding in AZN, and used it to buy SMT.
Replacing one highly priced for growth, low yield stock, with a highly rated growth IT that hopefully will deliver with less risk.
For my dry powder, I have bought RDSB and Physical Gold ETF.
RDSB on the basis of the above market signal that the price of oil will recover, and that Shell will resume the dividend gusher
Gold on the basis that the fiscal and monetary splurge will devalue the fiat currency in the longer term

[Dod101]

TUK
You must do what you feel most comfortable with. I am sure the price of oil will recover at least in the short term but things can change in that market very quickly. Just look what has happened to renewables in a relatively short time. Shell of course has the resources and clout I am sure to be very able to compete in that market and so irrespective of the oil price in the longer term it will still be around. Whether it will be a dividend gusher again, well who knows? I hold it so I hope so.

Scottish Mortgage has momentum on its side at the moment. Whether it is less risky than AstraZeneca I do not know. It is certainly less risky in the sense that it is not just one share but it can be volatile so fasten your seat belt. It is my second biggest (actually on today's price it is probably my biggest) holding and that is after selling about 20% of it in January at just over £6.

Dod

[TUK020]

TUK
You must do what you feel most comfortable with. I am sure the price of oil will recover at least in the short term but things can change in that market very quickly. Just look what has happened to renewables in a relatively short time. Shell of course has the resources and clout I am sure to be very able to compete in that market and so irrespective of the oil price in the longer term it will still be around. Whether it will be a dividend gusher again, well who knows? I hold it so I hope so.

Scottish Mortgage has momentum on its side at the moment. Whether it is less risky than AstraZeneca I do not know. It is certainly less risky in the sense that it is not just one share but it can be volatile so fasten your seat belt. It is my second biggest (actually on today's price it is probably my biggest) holding and that is after selling about 20% of it in January at just over £6.

Dod

Thanks Dod. I am not sure that 'comfortable' comes into it! I am trying not to be paralysed, but make decisions based on uncertain positions.
Probably the reason that I did anything rather than just sit on my hands was a sense of the market starting to settle.
Vix index slowly subsiding:
https://www.marketwatch.com/investing/index/vix/charts
I have a lot of faith that Shell are a forward looking and far sighted organisation. After reading their Energy Transition report, I felt comfortable that they would have scenarios and plans to cope with a changing future. They have gone from being an Oil organisation to one whose centre of gravity is more towards Gas. Big deal, still hydrocarbons, some might say. But I think it shows a sensitivity to a changing world (I was about to use the term 'environment', but thought it might be misconstrued), and an ability to adapt.