Okay, this probably sounds crazy to many of you, but we have seen these “super-cycles” in oil before, where we see boom and bust, followed by another boom, sometimes with a decade or more between each peak and trough. When crude prices drop this far, this fast, many of the small producers are driven into bankruptcy, or at least fire sales of assets as they try to survive. Who benefits? The majors, that’s who. Companies like Exxon (XOM) and Chevron (CVX) will buy assets on the cheap, and when prices begin to rise again, and they will, these big players will reap the benefits. Also, the big oil service companies will get a lot of extra business as wells that were neglected need to be brought back up to full operations, so companies like Schlumberger (SLB) will also do well. As investors, we have to look at the fall in oil prices, and the resultant drop in energy stock prices, as an opportunity to buy key stocks in this sector.
Oil prices may fall deep into the $20s, so it is a bit early yet. Also, if the overall stock market corrects/crashes, which looks likely to me, energy stocks will likely get knocked down even harder than the overall market. If oil prices drop into the lower $20s, and the overall market drops by 20% or more at the same time, I will be looking to buy key energy stocks.