$20 Oil and non-Houston Markets
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Please don't make the mistake of thinking this is about the big oil companies squeezing out the little guys. This is about Saudi Arabia trying to maintain their market share. Basically this ($50 or less oil) will stop when either the Saudis run out of money or there is a severe cutback in production, further than what we've already seen. Don't forget the Saudis also have a great incentive to keep selling oil at almost any price to prevent Iran from taking market share when Iranian production comes back online, thanks to the lifting of sanctions.
Also in the past we had a good bit of sway with the Saudis but after the end of sanctions that is no longer the case. Saudis are more than smart enough to realize that long term it is definitely in their interests to severely damage US fracking operations. Back to your point about big oil squeezing out the little guy, it would be much cheaper for them to simply buy out the little guys than have a multi year period of cheap oil. Big oil has been cancelling lots of projects and laying off thousands of workers and that is very costly.
One other more esoteric thought, frackers (for lack of a better term) have been borrowing heavily the last year to continue to finance their production, and now a lot of the loans (bonds) they took out are junk. This will have negative effects on all oil companies' ability to get the best rates on loans for sometime to come.
67 Replies
- General Manager at Dominos · Dallas, TX · Member since 2015 · 8 posts · 2 votes10y
winter time and a complicated stock market makes everyone wary. Market is still going with low interest rates, just keep an eye out and an open mind.
- New to Real Estate · FL · Member since 2015 · 9 posts · 2 votes10y
@Ethan G. Here in West Texas (San Angelo, Midland/Odessa, and Abilene) we are seeing an impact from the oil prices. Last year rentals were nearly impossible to find and now we are seeing many vacant properties. The great news is that this will only last a short time while big oil strangles out all the small oil companies. It is a great time to buy here and once the oil market has thinned out the pace will pick back up, along with oil prices, and be business as normal.
- Property Manager · San Antonio, TX · Member since 2013 · 37 posts · 14 votes10ySan Antonio is going great!
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes10y
I am not in Texas but I do know the areas well.
Houston is more oil centric. There will be a dip but not a collapse of the market. Texas markets historically have been doing so well that any little cool off is seen as a huge downturn when a soft market there is still out performing many markets in other states.
Dallas and Fort Worth along with Austin were recently named in the top 5- 18 hour cities in the nation. Much more energy diversified and tech versus straight oil so not feeling the effects as much.
In Houston you can have a 200k oil executives job now replaced by new jobs created but people making 15 bucks an hour. I think Houston will have a blip but be fine long term.
Oil was slated to be a 3 month thing short term. Then economists came out and said it is more like a 18 month issue. Iran is fixing to release a bunch of oil and when the last shortage happened many went drilling for more oil sources and found them. So there are multiple forces at play that caused a huge glut on the market.
The discussion centers around what price per barrel is GREAT for the economy??
You go too low and the oil companies and workers can't make hardly any money and go under. You go to high and gas gets so expensive it stifles the economy, traveling, and visiting local businesses.
Economists believe the magical balance is 60 to 62 dollars a barrel and believe in about 1 year it will be back up close to that level or in the 50's. That is the sweet spot where gas prices per gallon are still seen as favorable but oil companies can make a good profit and keep workers employed.
Where I am in GA we are not feeling the effects of more oil at all. We are so diversified that cheaper gas helps the economy thrive even more. There is something mentally when someone pays under 2 bucks a gallon and can fill the car for under 20 bucks that makes them want to spend on other sectors of the economy.
I remember when gas was close to 4 bucks a gallon and oil was over 100 a barrel. Might have been great for oil but not the country as a whole.
Please don't make the mistake of thinking this is about the big oil companies squeezing out the little guys. This is about Saudi Arabia trying to maintain their market share. Basically this ($50 or less oil) will stop when either the Saudis run out of money or there is a severe cutback in production, further than what we've already seen. Don't forget the Saudis also have a great incentive to keep selling oil at almost any price to prevent Iran from taking market share when Iranian production comes back online, thanks to the lifting of sanctions.
Also in the past we had a good bit of sway with the Saudis but after the end of sanctions that is no longer the case. Saudis are more than smart enough to realize that long term it is definitely in their interests to severely damage US fracking operations. Back to your point about big oil squeezing out the little guy, it would be much cheaper for them to simply buy out the little guys than have a multi year period of cheap oil. Big oil has been cancelling lots of projects and laying off thousands of workers and that is very costly.
One other more esoteric thought, frackers (for lack of a better term) have been borrowing heavily the last year to continue to finance their production, and now a lot of the loans (bonds) they took out are junk. This will have negative effects on all oil companies' ability to get the best rates on loans for sometime to come.
- 10yCraig PetersPro MemberInvestor · Fulshear, TX · Member since 2015 · 1 post · 1 vote
May be a great time to buy?
Originally posted by @Joel Owens:
I remember when gas was close to 4 bucks a gallon and oil was over 100 a barrel. Might have been great for oil but not the country as a whole.
There were some silver linings with $100 oil. 1) that price along with technological developments let Fracking take off which meant the end of hearing idiots espouse about peak oil. They'll start talking about it again at some point they always do, but at least for a while it has been silenced. 2) One certain moron will never say again 'We can't just drill our way to lower gas prices.' 360 days!
Originally posted by @Craig Peters:
May be a great time to buy?
I would say not yet. It will come, but busts can last for quite a while. See 1980s texas and Oklahoma for evidence of that.
- 10yRoy N.Pro MemberRental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
Originally posted by @Cal C.:
Please don't make the mistake of thinking this is about the big oil companies squeezing out the little guys. This is about Saudi Arabia trying to maintain their market share. Basically this ($50 or less oil) will stop when either the Saudis run out of money or there is a severe cutback in production, further than what we've already seen. Don't forget the Saudis also have a great incentive to keep selling oil at almost any price to prevent Iran from taking market share when Iranian production comes back online, thanks to the lifting of sanctions.
Cal:
... or when Saudi Arabia has inked a sufficient number of long term supply contracts globally (something they seem to be pursuing quite vigorously) that it's in their interest to see the price rise back-up.
- Property Manager · Tulsa, OK · Member since 2008 · 186 posts · 208 votes10y
Here are two recent articles regarding oil prices and the rental market that we think are useful to investors in Oklahoma City, Tulsa, Dallas, and Houston (or really any market in Oklahoma or Texas).
Oil Price Impacts and Multifamily Housing - Freddie Mac
How is Oklahoma real estate positioned in this oil downturn? - Kansas City Federal Reserve
- Investor · College Station, TX · Member since 2016 · 20 posts · 3 votes10y
Originally posted by @Cal C.:
Originally posted by @Craig Peters:
May be a great time to buy?
I would say not yet. It will come, but busts can last for quite a while. See 1980s texas and Oklahoma for evidence of that.
I agree w/ Cal. Although we are seeing a slowdown in the market, I think you will see it dip more before it comes back.
To supplement this - the correlations among stock market (dragged down in partt due to oil and gas debt repayment issues), my job income servicing oil and gas companies and the local housing market have a potential to be a triple whammy but also a real opportunity to buy cheap.
Originally posted by @Howard Mayne:
Originally posted by @Cal C.:
Originally posted by @Craig Peters:
May be a great time to buy?
I would say not yet. It will come, but busts can last for quite a while. See 1980s texas and Oklahoma for evidence of that.
I agree w/ Cal. Although we are seeing a slowdown in the market, I think you will see it dip more before it comes back.
Totally agree with this. Macro trends and cycles tend to last longer than a year and a half.
Originally posted by @Ethan G.:
To supplement this - the correlations among stock market (dragged down in partt due to oil and gas debt repayment issues), my job income servicing oil and gas companies and the local housing market have a potential to be a triple whammy but also a real opportunity to buy cheap.
But if the banks stop lending again, it will take cash. I don't think that many individual investors are loaded up at this point in the cycle.
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes10y
It depends who the investor is. If they had a few hundred K and everything is tied up into property then no.
If it is someone of great wealth then they generate tons of cash through business ventures and NOI from the portfolio. Even in a down market they can do 50% ltv with 50% down and banks will give them money.
The 20% down stuff would probably stop for awhile in a falling market for lending.
Originally posted by @Jon Klaus:
Originally posted by @Ethan G.:
To supplement this - the correlations among stock market (dragged down in partt due to oil and gas debt repayment issues), my job income servicing oil and gas companies and the local housing market have a potential to be a triple whammy but also a real opportunity to buy cheap.
But if the banks stop lending again, it will take cash. I don't think that many individual investors are loaded up at this point in the cycle.
Others don't have liquidity really would it an even better opportunity to buy. I am completely out of the stock market now due to correlation with oil and am going to set up credit lines everywhere I can in advance, including more esoteric things like credit lines secured by the cash values in my life insurance policies.
- Investor · Rochester, MA · Member since 2015 · 33 posts · 10 votes10y
Did unbelievable with DTO and SCO (ETF 2x oil shorts) just until yesterday. Bought about a month before Christmas. Still way, way, up, but not as much. (was up over 100%, now more like 60%). But don't follow me is what I tell everyone, unless you can loose it. I understand they are supposed to be day traded, but they just kept shooting up, so I keep holding. I think Fridays bump up will reverse, so I bought more on Friday. Hopefully I will not get slaughtered. (you know what they say ... pigs get slaughtered). I do think the price will go down some more, but I plan on pulling out soon. In the middle east, they can produce a barrel of oil for what? ... about $3 bucks? But, I read it is hurting them also, so how long can it go on?
Sanctions lifted from Iran must be effecting the price, and did they just say that they will increase output by 500,000 bbl/day? Thought I read something like that. Before Christmas I read that the tankers were coming and no place for the oil. Something like a mile long if they lined up end to end.
On the other hand, the company I work for is approx. 50% energy. Stock price has gone from over $100 to about $15. Layoffs and retirements. I just missed the "package" by one year. (age + years employed), and I don't think the "package" is very good. So, I need energy to turn around, but meanwhile, I'm trying to capitalize on the falling prices of oil best I can.
- Investor · Arlington, TX · Member since 2015 · 104 posts · 47 votes10y
Dallas/Ft. Worth is in a housing shortage with so many major companies moving here. Prices are WAY up and inventory is way down. Sellers are getting multiple offers and usually are getting buyers into bidding wars.
- Madison Heights, MI · Member since 2014 · 472 posts · 132 votes10y
Originally posted by @Rob Poulin:
Did unbelievable with DTO and SCO (ETF 2x oil shorts) just until yesterday. Bought about a month before Christmas. Still way, way, up, but not as much. (was up over 100%, now more like 60%). But don't follow me is what I tell everyone, unless you can loose it. I understand they are supposed to be day traded, but they just kept shooting up, so I keep holding. I think Fridays bump up will reverse, so I bought more on Friday. Hopefully I will not get slaughtered. (you know what they say ... pigs get slaughtered). I do think the price will go down some more, but I plan on pulling out soon. In the middle east, they can produce a barrel of oil for what? ... about $3 bucks? But, I read it is hurting them also, so how long can it go on?
Sanctions lifted from Iran must be effecting the price, and did they just say that they will increase output by 500,000 bbl/day? Thought I read something like that. Before Christmas I read that the tankers were coming and no place for the oil. Something like a mile long if they lined up end to end.
On the other hand, the company I work for is approx. 50% energy. Stock price has gone from over $100 to about $15. Layoffs and retirements. I just missed the "package" by one year. (age + years employed), and I don't think the "package" is very good. So, I need energy to turn around, but meanwhile, I'm trying to capitalize on the falling prices of oil best I can.
Once oil bottoms, it will be a good time to buy long puts on those ETFs...
- Investor · Princeton, TX · Member since 2014 · 1k+ posts · 1k+ votes10y
I agree Dallas is still in a shortage. Weather is still causing delays in lot development in Collin County.
I would not be surprised if Princeton runs completely out of lots again.
Of course, the weather will event change and builders will get more lots and the shortage will not last for ever.
The developers are learning. They seems to be trying to play catch up by increasing the number of lots under construction.
DFW is still in shortage. Even distressed property is going for like 90% ARV. I been looking in Abilene but meh that city has always been cheap and the oil really isnt making a whole lot of impact since Dyess rents out alot of the higher end houses for their officers.
the ghetto homes have been available for a while but i dont really feel driving 2 1/2 hours for a bunch of 30k-60k homes in class C neighborhoods.
Ironically MFH in abilene are more then in DFW for whatever reason..
- Upton, MA · Member since 2016 · 2 posts · 3 votes10y
I work on a ship in the Gulf of Mexico in the oil industry. Being stuck on a ship for months I have plenty of free time. I figured I would use some of this time to learn a little about investing. I graduated from college about a year ago and now that I have some money I wanted to learn how to make it work for me.
I have been following 16 oil related stocks for about three months now. I've created an ameritrade account but still haven't the confidence to purchase any stocks yet.
Following these stocks I have began to notice some trends. Every morning before the market opens I check the price of oil. I've noticed since oil has been crashing all of these stocks have been crashing with it. If before the market opens I see that oil has ticked up as little as 1% all of or most of the stocks I am following will jump up 4-10% a share. Its as if people think that the little tick up in oil prices is the big start in the rebound. Being in the industry and seeing what's going on I know it's going to get a lot worse before it gets better.
I believe oil prices will keep on crashing until enough production is lost due to bankruptcies of smaller oil companies throughout the world. I do not see OPEC cutting production because the whole part of these low prices are for them to gain market share. The only other way I see oil prices going up anytime soon is due to war. These low oil prices are causes some conflict in the Middle East.
Most of the stocks I have been following are directly relating to oil production. I noticed when looking at most of the 5 year historic stock prices for these companies they directly relate to the 5 year historic oil prices. It's as if I could put the graphs of any of these stocks on the oil price graph and it would match. Most of the stocks I have been following historically over ten years have averaged a price of 40-55$ per share. Now most of them are valued at 10$ or less per share some even hitting 2-3$ per share.
I expect a handful of these companies to go bust due to debt before oil recovers. However if I buy in during the upswing I think I could really make some money. At the same time I am very nervous about actually buying stocks.
I was hoping to get some advice from some of you guys that are more experienced with the stock market. Do my evaluations of the market seem to make sense? Does investing in these stocks sound like a good plan? I know it's not easy to time the market but I think it's possibly to see signs of an upswing such as dropping production and dropping storage numbers. I keep all my college loans/car payments/bills paid 6 months ahead as a safety net in preparation to invest. I have about 20k in the bank and am willing to gamble it on a big return. Am I better off putting my money elsewhere. Eventually I want to get into rental properties and a big hit on the market would financially put me in a good place to do it. I worked for a contractor flipping houses for 5 years before going to college which I think gives me an advantage. Any input would be helpful.
- Wholesaler · Fort Worth, TX · Member since 2009 · 39 posts · 16 votes10y
I know this; the hedge funds are flying people to the Fort Worth/Dallas Market putting them on bus tours and selling shares starting at $50,000. Our Market is not slowing down
- San Antonio, TX · Member since 2015 · 125 posts · 102 votes10y
The Texas market cheat sheet for newer investors:
Major Markets: (Dallas/FW, Houston, San Antonio, Austin)
Dallas / Fort Worth = One of the strongest markets in the nation. In a strong state with laws favoring the growth of business and industry. It is well diversified and a metro area of 6+ million people. Dallas metro is here to stay as an economic powerhouse and ranks below the national average in cost of living. Great place to invest.
San Antonio = Great city as well, smaller than Dallas so a tad less diversified however it is a powerful and booming market, so you have the most potential upside in my opinion with the least amount of risk. Cost of living is low so you can get into investments without a ton of capital required.Austin = a phenomenal city, economy, and very diversified. The kicker? Very expensive relative to other Texas markets. I would consider Austin overpriced. You have a higher chance of seeing a market correction here than anywhere else in Texas. Otherwise amazing place to invest and should outperform most places in the country.
Houston = Same as Austin, except slightly less diversified in the sense that it is huge in the oil and energy sector. Could see a small market crash if oil industry doesn't shape up. Likely we will see Houston prosper long term regardless of oil. Great place to invest although probably better choices in Texas.
Medium Markets:
Corpus Christi = Up and coming, and has beaches. Will likely be turning heads in the next couple of years with its growing port and connection to the eagleford shale.South Texas / Rio Grande Valley / Texas-Mexico border = international trade and business abounds here. Would not recommend this as a major investment market.
West Texas = Oil dependent. Would not recommend with the volatility of the oil industry right now.
TLDR = Texas market rocks!
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