Oil - my thoughts and expectations (basically best guesses) on the industry. Please call me a dumbass if you think I'm wrong and save me some money.

I think that oil will go back up in price, not to 2007 levels but most likely to float around $60-70/barrel and stay there for a while. I'm not sure when this will happen but I don't want to miss the wave that takes it there. I'm concerned about what's going to happen with Saudi Arabia and Iran. They are not able to settle on oil production but I imagine an agreement will be met soon because they both rely on it as a major source of income for their country and there are so many major oil players whose goal is to calm their production which will diminish the glut.

Also, the glut that was created by Iran to increase their market share by the oil market has been partially accomplished. While it hasn't removed major players, it has been able to effect exporters that would be considered developing countries. Developing exporting countries do not have the institutional support that major economies have to manage the losses that follow massive decreases in price of exported commodities. In economics, the standard for operating in a variable price commodity market (oil) is to continue to operate through low/unprofitable prices since price will increase in the future and recoup losses.

Professionally, I have eliminated positions in fracking and other smaller private oil & gas services companies. Smaller private companies in the oil industry will continue to go under as they don't have the support that would come with major companies. Of course many will survive, but you don't want to lose your investment on a bankrupt company. I'm remaining reserved to deploying capital to companies earning less than $1B in revenue. However, the smaller companies that survive will either have a great return when the market stabilizes, and/or become an acquisition target which will also increase return. I'm seeing smaller oil companies go under as evidenced by the availability of office space in the Houston commercial real estate market.

Investing in ETF's is a good alternative that is already diversified. I like the ETF USO, United States Oil Fund LP. When oil was trading at $49.76/barrel the ETF USO was trading for $14.60/share in Aug 2015. Right now it's at $11.70/share. In Dec 2014 oil was at $53.27/barrel and USO was at $24/share.

With the current market do you think this is a good buy?

Submitted May 16, 2016 at 01:55PM by jaanders http://ift.tt/1XuWdcl