In addition to oil prices, this post contains some insight into stock prices before and after dividends are paid, which if you aren’t aware of it, might cause unnecessary consternation.
BP paid a 60 cent dividend based on shares held close of business Tuesday. Therefore it opened Wednesday morning exactly 60 cents lower, because as of that moment shares bought did not have the right to the dividend. There was no news or other reason for this gap down, and it is normal. If you would rather have capital gains than dividends, in theory, you can buy it this week and sell it just before the next dividend. Of course, other factors may intervene. As of Friday afternoon, it has drifted down a bit further and the yield is now again over 7%, at which point I have usually accumulated the stock. Occasionally there is company-specific news, but mostly it moves with the price of oil
Above is the price of oil over the last 5 days. It really hasn’t done much. It is maybe 50 cents lower than Monday morning, which is only 1%. It has generally been in this range for months. Does anyone know what it will do? Absolutely not. Opinions are all over the map, from crash to rise. I believe neither, but as it is a game of guessing what other people will do, I will give you some considerations I’ve come up with after watching for several months, and you can make your own guess. Here they are…
- OPEC and other producers have tolerated low prices as long as they can without losing control of their populations. It will take time to replenish cash supplies.
- If OPEC wants to continue the strategy of bankrupting US shale producers, they will have to allow the US producers to ramp up and get much farther in debt than they are now. This will take time and reasonable prices.
- OPEC eventually does what they are talking about, as they did when lowering prices. All of the “talk” now is consistently about raising prices, and further/deeper cuts if necessary.
So, while it may be necessary for OPEC to revert to a price war, because of the above three considerations I do not think it is in the cards before 2018 at the earliest. By that time the question could be overtaken by other developments we don’t foresee now, such as uptick or decline in the world economy, etc.
Shuler Research 