With the current trend in the oil market, many individuals are doing their best to buy the oil based on the current trend. Recently, most Wall Street analysts have been basing their 2015 earnings estimates for major oil companies on where they expected the price of oil to end up rather than where the price of oil is today. With this analysis, some investors are jumping into it too quickly.
An example of this move is from Oppenheimer analyst by the name Fadel Gheit who updates his earnings estimates every Friday. He bases his updates on current prices for West Texas Crude and Brent Crude, (Tygiel,1994)
The crude-oil futures are telling a far different story than the spot price is. Considering investments, the prices is far different than for the current$47 spot price. Investors should focus on the price of the longer-term futures when making their investment decisions.
Although this is the market’s best guess of where oil is going over the longer term, it is too early to know exactly when the price of oil will make a significant recovery, some interesting numbers can be generated as follows. According to FactSet statistics, the average price for Brent crude was $99.40 a barrel in 2014. On 2008, the average price for the same Brent was $98.39 and fell to an average of $62.81 in 2009. The result of this was a 54% fall in earnings by Exxon Mobil Corp.’s.
On average estimate, Exxon Mobil earned $7.27 a share in 2014 which got polled by Fact set and it is predicted that the company’s earnings will decline by 45% this year to $5.01. Lately, the stock closed at $88.96 and traded for 17.8 times the consensus estimate.
With this estimates, the overall oil production will decline at one time leaving investors with no option rather than waiting for that time to happen. A finance professor at Duke University, Campbell Harvey discussed the market’s optimism for oil prices with Mark Hulbert and said that investors looking at current prices might be overreacting.
One of the main learning objective to this current event gets directed on buying oil stocks at a low price. With the expected decline in oil prices, it is evident that oil stocks will be bought at a low price. Energy Select Sector SPDR (XLE) which is an exchange-traded fund aimed on the energy sector has declined about 21% while the S&P 500 (^GPSC) has increased nearly 5 percent.
With the willingness of many to buy when the blood is running in the streets, this is the perfect time to buy oil and oil stocks also. Buying at this time will create a conducive environment both as a financial and strategic plan. Applying financial plan entails managing finances over time in such a way that business needs are met, (Hallman, et al 2003). On the other hand, strategic planning will determine the direction an individual in a business takes, goals set for the business and how to achieve them, (Mintzberg, 1994).
In conclusion, enhancing these planning methods together with a network amongst various businesses through supply chain will enable effective decision are made. Before deciding whether to buy oil stocks based on the current prices, all these factors should be considered in order to greatly manage a business incase the oil is intended for it.