Original Story, September, 2016: “Anyone who had a chance to read “Newsvesting” knows that the worldwide glut in oil, which Newsvestors would have spotted as developing by mid-2014, presented great investment opportunities…but required focus and patience.
We focused in on several large petroleum-related companies. They basically had to be cash rich, paying out a substantial dividend, and capable of riding out a substantial and prolonged drop in the price of oil.
ConocoPhillips (COP) was our primary investment from the very first day that we realized that an oil glut was developing but had yet to make it onto the front pages of major newspapers. As “Newsvesting” went press in the summer of 2015, COP had fallen to the low $60 range and it was questionable if it could hold even at those levels. But we dove in determined to follow our own rule of dollar averaging into it. That was with full knowledge that it could go from being “a bouncing ball” in which conflicting news reports as to whether oil prices might rebound presented opportunities to buy COP and sell it later with a short term gain, to becoming “a falling knife.”
It became a falling knife.”
So When Did We Catch the Knife and What About 2018? COP slumped into the mid-to-lower $30 range by March of 2016.Supply was abundant and the impact on pricing and revenue led to COP’s decision to slash its famed dividend.But with a new found effort towards cost-cutting combined with a decline in worldwide oil production, COP was back to the mid-forty dollar range by the summer of 2017. We purchased at that level and as COP crossed its critical $50 level in recent months, we plunged in again at around $52 a share. By December 22nd COP had risen to $55.50 a share and several analysts had it pegged with a target of $65. Valero Energy (VLO) as our refinery play on a somewhat resurgent oil and energy sector, going into 2018.