Making Money on the price of oil

Discussion in 'The Study' started by DavidCC, Jul 2, 2008.

  1. DavidCC

    DavidCC Master of Arts

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    Oil is going up up up! mostly this SUCKS for us regualr people but I have found a way to actually improve my financial position based on the high price of oil.

    Their is a class of investment knwn as "Royalty Trusts". Land owners lease the rights to develop resources found on their land (be it timber, oil, gold, gas etc) and these are often set up as a Royalty Trust that is then publically traded. Periodically (many are monthly but some are quarterly) the R.T issues royalty payments to shareholders.

    These royalty payments are better then dividends becasue they are not zero-sum. Dividend payments lower the price of the stock, royalty payments do not.

    The high price of oil leads to, of course, higher revenues for the oil and gas produced and sold on the lands underlying the Trusts.

    I am currently invested in 3 of these:
    HGT
    MARPS
    SBR

    DO YOUR OWN RESEARCH but I wanted to tell you all that there is always an upside to every down if you look for it. There are risks in these of course so DO YOUR OWN RESEARCH before investing.

    I am also heavy into metals. So whenever I see the DOW or S&P go down, and the price of oil go up, I am happy because my tickers are all green :D
     
  2. zDom

    zDom Senior Master

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    So are you actually coming out ahead even after figuring in what using fuel at the higher prices cost you?
     
  3. Empty Hands

    Empty Hands Senior Master

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    Thanks for doing your part in contributing to that. ;)
     
  4. Nolerama

    Nolerama Master Black Belt

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    Yay. Investing.

    It's nice that one can make money off of the increasing price of oil. But I think we all need to be a little more socially conscientious when it comes to investing. I don't think it's moral to actively buy/sell stock in commodities whose prices are so high due to its equal demand on the stock market, in addition to its scarcity. The only people that lose on that are the consumers.

    Now, I'm going to go through my meager investment portfolio and check that out. Thanks for the reminder.

    However, is investing in Royalty Trusts kind of like a crap shoot?
     
  5. DavidCC

    DavidCC Master of Arts

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    are you thinking that my purchase of shares in a royalty trust are contributing to the rise in the price of oil? these funds finance the production of oil and gas, and the ones I listed specifically in the US. Wouldn't that help it go down by increasing supply?


    I am coming out ahead of where I would be if I didn't invest in these. It's silly to think that the distribution of royalties from sales is driving prices up though.


    "Buy/sell stock in commodities"???

    I'm a consumer, and I am winning. I put my responsibility to "society" just behind my responsibility to my family, if you want to do it the other way around I guess that is your choice... These funds SUPPORT DOMESTIC PRODUCTION.

    Is any investment of any kind that different from a crapshoot? The funds I am in, it seems to me, are showing continued development of new wells.

    I think moral outrage is a knee-jerk reaction here, really.
    Isn't increased domestic production a good solution to the high prices?

    Once upon a time somebody had some land that has oil and gas under it.
    They leased the rights to extract that stuff to people who could do so.
    They setup a trust fund to receive the payments from those people.
    They sold shares of that fund on the open market
    The people who bought those shares now get royalty payments as the oil and gas are produced and sold.
    Or they can buy and sell the shares to make profits too.

    How did I drive up the price of gas?
     
  6. DavidCC

    DavidCC Master of Arts

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    I should point out that the payments do act as depreciation on the value of the trust, which COULD (and will) be reflected in the stock price, and as the trust's resources are depleted this becomes the most important thing to consider. Trusts under US law are designed to go to zero value in this way.

    But also the tax consequences of depreciation on your assets vs capital gains taxes!!! you tell me which you prefer!
     
  7. Nolerama

    Nolerama Master Black Belt

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    Maybe I'm commenting on the speculation and the investing of futures, which in a way, might touch on investing in Royalty Trusts. Either way, money is spent on speculating a future, and a future contract is created, right?

    Along that train of thought, I thought about things like energy costs (specifically Enron and my local Ameren), the price of crude oil, rice.... all commodities that can be bought and sold based on futures speculation. When something happens to detract from said speculation, things get hairy for the end consumer/user: prices go way up to the point where it gets uncomfortable to purchase.

    But that's just my point of view. I think it's immoral to basically advertise a form of investment that puts corporate profit first and basic humanity (essential needs) second. But that's my opinion, and I didn't mean to attack you.

    There's nothing wrong with putting your family first. In fact, that's our very nature. If I had children, I'd make sure I'd do everything to make their lives easier than mine ever was. I get it. No need for the exclamation points.

    A lot could be debated on setting one's morality solely on the family, especially in light of instant gratification. There's post graduate classes available that touch on the philosophy of consumerism in light of material wealth. There's good and bad sides to both.

    But I stand by my statement and understand the initial advertisement. I did do my research, and it's not morally right for ME to invest in something like that.

    Cheers.
     
  8. 5-0 Kenpo

    5-0 Kenpo Master of Arts

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    Wait a second, hold the phone...

    Are you saying, that by saving a little bit of money, and doing some financial research, and investing your money a bit wisely, the average person could make money? And in the oil industry no less?

    I mean, I thought the only people who made money on oil were rich white guys in business suits who had not a care in the world for the common man.

    The hell you say.
     
  9. DavidCC

    DavidCC Master of Arts

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    Nope, no futures markets, no speculation. The RT's are paying out money they received based on the previous month's sale of stuff they already pulled out of the ground.




    "Speculation" on a "thing" is when an investor risks their money on a guess at what the future price might be for that thing.

    So I might create a contract to sell 100 pounds of truffles at $100 per pound in September. If you buy that contract now in July, then you and I have a deal that I will sell you 100 pounds of truffles for $10,000 on Septmeber 1st. So your truffle supply for Septmeber is now guaranteed.

    September 1st rolls around, and I've got to come up wth 100 pounds of truffles. I might have them sitting in my basement if so I send them to you and you pay me $10,000. if I don't have them on hand, then I have to buy them. if the market price on that day is $90 per pound, then I'll pay $9000, and make a $1000 profit. if the market price is $110, then I'll pay $11,000 and LOSE $1000. So you as the buyer might be paying a extra if the price dropped between July and Sept - that's a risk you were willing to take in order to guarantee a September supply.

    Since I have a contrat to sell at $100/lb, I _really_ want the price of oil, oops I mean truffles, to go DOWN under $100/lb. And the buyer of that contract, the country (oops, I mean chef!) who needs it, wouldn't mind if the price went up becasue they already locked in a lower price. That is until they need to buy their next batch, then they will want it at the lowest price possible.

    Now what if I was trying to sell my September truffles at $200/lb? Nobody in their right mind would buy it.

    So, please explain how you see futures contracts and "speculation" driving up the price of oil? Do you realy know? or did someone on TV tell you so?


    I don't feel attacked. although you did just say I was immoral for creating this thread, right?

    is cheap gasoline an "essential need"??

    If you think there is even ONE form of investment that doesn't put profits first then you are living in a fantasy world. The ONLY reason to invest in anything it because you expect to make a profit of some kind. Otherwise it is not investing, it is SPENDING. That profit is not necessarily in cash, for example I beleive the money I spend on training my daughter in Kempo is a good investment because she is a braver, stronger, safer person because of it. The money I spent on ribeye steaks last night will pay no benefits to me in the future, so that is considered "spending".

    I think you could start with the most basic "do what is right for me" and from there infer that there was good to be had for you in sacrificing for your family, tribe and species; because you are after all part of those groups and so what is good for them is good for you. But I didn't take any post-graduate classes in philosophy of consumerism etc. Did you? Were they a good INVESTMENT or were they they just time and money SPENT on personal indulgence?

    I have to specualte that your reseach was not very deep or accurate because you still equate royalty trusts with futures contracts and somehow are demonizing those in realtionship to the price of oil and gasoline.
     
  10. DavidCC

    DavidCC Master of Arts

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    LOL

    its' the American Dream.

    get some CAPITAL and grow it (even if that is $5 a month out of your welfare check into an education account for your kids). hey now you are a CAPITALIST, engaging in CAPITALISM. Congratualtions!
     
  11. zDom

    zDom Senior Master

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    Nope. But it IS essential to the American Way of Life.

    Things will be a'changing thanks to speculators driving up the price of oil.

    Not faulting you, of course. After all, the guy who throws a cigarette butt out of the window isn't responsible for environmental damage like companies who illegally dump toxic waste.

    Unless you are talking principles :)
     
  12. Nolerama

    Nolerama Master Black Belt

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    Isn't that investing in futures? Municipalities do that with gasoline prices, and I think Hillary Clinton lost some money way back in the day on pot-bellied pigs doing that.

    No, no one in television told me how to think... at least not yet. I'm just saying that there's a possibility to set the bar high in terms of the initial phase of futures investment. Those truffles could be set at a higher price than normal, or even based of higher prices on other speculative investments. I feel it takes away from real value and places added cost to the consumer based on speculation.




    You're not immoral. You're looking out for you and your own, and that's great. I was commenting on the message, as well as the process in which you promote.

    I thought you wanted people to buy what you were selling.

    I differ on that as well. I think investing in, say, companies heavily into AIDS or cancer research puts a precedent on solving some of society's problems at least on some moral level outside of profiteering. I think investing in local business in order to improve the quality of living of surrounding residents is important on a moral level as well. Sure, I might make money. I might lose some. But money is not the point, it's the way in which we both differ on our investment philosophies.


    That's absolutely great. I'm glad your daughter's Kenpo training is helping her out. Protein is an essential thing as well. Ribeyes are tasty.


    We are at an impasse on the purpose of education. Maybe that could be another thread?


    I'm not "demonizing" anything. I was stating my initial reaction to a form of investment and how it pertained to my beliefs, and the current knowledge I've had to comment on such things.

    Thanks for educating me on this form of investment. I'll acquiesce to you and look into it further, but for now I'll stick to my guns and view investing in Royalty Trusts as going against my morals right now.

    Please don't flare up over this. We don't have the same values on this topic, or for a few others based on your statements, like education. It's not an investment to me. It's an improvement of life. To me. It's kind of like taking a MA class. (At least we have that in common)

    And yes, I've taken some of those courses and can comment on implications and outcomes of certain forms of investment on me, my family, my tribe, and species.

    You're showing your points in the way it motivates you to invest in Royalty Trusts. That's great. Show me some points as a conscientious consumer in why I should buy into Royalty Trusts.
     
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  13. DavidCC

    DavidCC Master of Arts

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    HOW are "speculators" driving up the price of oil?

    HOW is investing in a share of the profits from oil PRODUCERS anything at all like "speculating"????
     
  14. DavidCC

    DavidCC Master of Arts

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    The example I gave of selling truffles futures is EXACTLY speculation and use of futures contracts. It was given as a counter-example to the investment in royalty trusts, which is NOTHING at all like investing in futures contracts.


    What if the price of truffles went UP betwene the date the chef bought the contract and the date of delivery??? He'd be a pretty darn happy consumer (of truffles) wouldn't he???

    What if the seller of the truffles contract asked for a price that was ten times the going rate. (1) would anyone buy that contract? (2) Would that have any impact on today's price for truffles? I submit that the answers are (1) No (2) No.







    I'm not selling anything.


    if thsoe companies don't make a profit, they will go out of business, and then nobody gets any vaccine.


    notice that the money I spend on her training does not make me one penny in cash returns. it's still a good investment.

    investing in royalty trusts makes more capital available to the people who drill for oil. That makes it possible for them to drill for more oil, which can make oil prices go down. also, you can make money, and any conscientious consumer should want to do that.
     
  15. zDom

    zDom Senior Master

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    http://www.nader.org/index.php?/archives/1276-Stop-the-Oil-Speculators.html

    "Deborah Fineman, president of Mitchell Supreme Fuel Co. in Orange, New Jersey, summed up the scene: 'Energy markets have been dictated for too long by hedge funds and speculators, who artificially manipulate the numbers for their own benefit. The current market isn’t based on the sound principles of supply and demand but it is being rigged by companies and speculators who are jacking up prices for their own greed.'”


    It isn't, I reckon.

    But it IS participating in profiteering by the big oil companies (record profits as the nation's economy staggers!) who, in turn, justify their actions by claiming they have an obligation to maximize profits for shareholders.

    So ... :)
     
  16. Big Don

    Big Don Sr. Grandmaster

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    Saying "Futures" is just another way of saying "Options" you can, right now, by an option that gives you the right to buy a stock at a preset price at some point in the future. IF, when that time comes the price of the stock is LOWER than your option's price you lose, if it is considerably higher than your option's price, you win and can either buy the stock yourself or sell the option to someone else. It is gambling more than anything else and to claim people investing in the futures markets are somehow "screwing the little guy" is just not understanding how the system works.
     
  17. Big Don

    Big Don Sr. Grandmaster

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    I'm sure tired of that particular line of crap. The "EVIL" oil companies profits were in the neighborhood of 10%. Banks profits were in the mid 20% levels, and the banks foreclosed on a few million people...
    You can be bent out of shape anyway you like, but, don't pretend 10% is an obscene amount of profit.
     
  18. DavidCC

    DavidCC Master of Arts

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    the oil wil be pumped and the money will be made, my point in posting this thread was that everyone can get some of it, if they know how...

    I would ask Ms Fineman the same question, can she back up her claim that the market is being manipulated? I would think that she has a vested interest in blaming some mysterious manipulators since I am sure she receives angry letters everyday from her customers about the high price she is charging. So (1) she offered no evidence and (2) she is far from objective.123
     

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