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  • Writer's pictureIshfaaq Peerally


Portfolio down today with $CXO and $PE both down by about 2% after $OIL prices crash by 5%. Saudi Arabia said that 70% of productions will be back to normal within weeks. $DGE.L and $TRV are respectively 1% and 0.75% up. Therefore, today's losses won't be that big. Good to have exposure to securities with little correlations between each other. Today's fall in oil prices also proves what I talked about in my video.


Yesterday was one of the best days for my portfolio this year beating the S&P 500 $SPX500 by about 1%. It was mainly because of two stocks, Parsley Energy $PE and Concho Resources $CXO which gained respectively 7.5% and 4%.

What causes the rise in oil $OIL prices? Drone attacks on the largest Saudi Arabian oil producing facility Abqaiq and Khurais oil field. Saudi Arabia is the second largest oil producer in the world after the US and it had to cut its production by 50%. This caused a reduction of 5% in the world oil supply. When supply goes down, price goes up. And this reduction in supply will last for months.

Oil is the most important commodity in the world. Most of our electricity is made from oil and there are so many derived oil products which we can't live without. Therefore, a surge in oil prices will affect the markets and economy.

The greatest winners were of course, oil companies with ExxonMobil $XOM gaining 1.5% and ConocoPhillips $COP gaining 9.03%. What really interests me are upstream companies in the Permian Basin and here we can see Apache Corp $APA gaining 17% and DiamondBack $FANG 8.6%. The reason is because higher oil prices means higher margins for these companies.

Gold prices $GLD $GOLD rose yesterday because of volatility. If there is a war between Iran and Saudi Arabia, there will be uncertainties in the market and people will be buying gold as a hedge. The possibilities of a war also caused a surge in defense stocks with Lockheed Martin $LMT and Raytheon $RTN gaining respectively 2.25% and 2.63%. Boeing $BA was down and it is because they have exposure to commercial airplanes.

The main losers of rising oil prices are airlines since most of their expenses come from jet-fuel (kerosene). American Airlines $AAL was down by 7.29%. Companies with great expenses in transportation such as Fedex $FDX , UPS $UPS and even Amazon $AMZN are affected. Industrial companies uses a lot of petroleum products are also adversely affected. Even Tesla $TSLA is adversely affected by oil prices. The factories still mostly run on oil. Facebook $FB is not so much affected since they run 100% on renewable energies and they have no transportation costs or anything. The largest loser is Saudi Aramco. The current events will affect their coming IPO and consequently JPMorgan $JPM , the main underwriter.

As you can see, everyone is affected by oil prices. Higher oil expenses will reduce earnings and will cause a rise in prices. Consumers are going to be affected. And this can lead to a recession. I told you recently that just before a recession, there is a hike in oil prices. You can see it in another way, a hike in oil prices can lead to a recession.

Nobody exactly knows what will happen in the near future. I am expecting a rise in oil prices but it is going to take some time. Was yesterday the start of that hike? I don't know. As a long-term investor it doesn't really matter. I should also not be celebrating the 7.5% gain of Parsley Energy. The stock will crash when oil prices go down. Oil prices are volatile right now and I'm sure it will crash soon(already happening). I am betting on higher oil prices. If oil prices reach $80/barrel, companies such as $PE and $CXO can double or even triple in value. What happened in Saudi Arabia is an unexpected event. It may facilitate the surge but I am not focusing my long-term investments on that. I'm focusing my investments on calculations.

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