Weekend Reading – Where does oil go from here?

Weekend Reading – Where does oil go from here?

Hey Folks!

Welcome to a new Weekend Reading edition covering another topic I’ve been thinking about a bit: where does oil go from here?

This was my article from this week: highlighting our Top-5 stocks.

My Top-5 Stocks

Weekend Reading – Where does oil go from here?

Potentially much higher. 

Before that take, let’s look back…

Recall experts were saying inflation was transitory, and even our Bank of Canada played along a bit.

I wasn’t planning for that myself.

These were my thoughts on inflation from summer 2021:

Inflation isn't going back to normal

My X/Twitter reference, excuse any typos or grammatical errors 🙂

Back then, I believed the key reason why inflation was going to move higher and stay higher, was because our central banks were incapable of action back then, worried what would happen if they raised rates (even slightly) during a very trying and troubling pandemic after almost a decade of rock-bottom free money and inaction. 

The reason I believe rates will continue to be modest, potentially for a few years ahead, is because of the pandemic aftermath and also for the same reason we got here in the first place: climbing household debt with our housing sector moving most of our economy (and not much else).

According to an OECD snapshot I read, from June 2023:

“Housing investment as a share of GDP reached 8.9 % in 2022, with an increase by 28.7% in the last five years compared with a level of 4.8 % on average in OECD.”

Source.

Yikes.

So, my theory is, unless housing prices come down quite a bit or at least stabilize in the coming years, inflation is not coming down anytime soon. Housing simply needs to cool off…

Back to oil…

With a new, desired economic slowdown tied to our Bank of Canada’s interest rate tightening cycle, historically speaking, one thing that surges in price when inflation is higher is oil.

Weekend Reading - Where does oil go from here

Source: https://inflationdata.com/

Oil prices are certainly affected by several factors that include everything from the weather to economic and political instability. But at the consumer level, oil prices directly impact inflation. Rising fuel prices increase the cost of transporting goods and services, and as a result worsen inflation by raising the end price that customers have to pay for all goods. I’m sure you’re feeling this now… We are. 

Like inflation, I think higher oil prices are here to stay for the coming years so I’m planning for that too – in my portfolio – and maybe you should as well. 

More Weekend Reading – upcoming webinar to attend!

I must say, I’m REALLY looking forward to participating in this live webinar on Thursday, October 12 with other investors along with my partners at TD Direct Investing.

When? Thursday, October 12, 2023 @ 6 pm ET

What? Three ways to build wealth with dividend investing

As My Own Advisor, you know I tilt part of our portfolio towards dividend growth stocks. I believe and own dividend-paying stocks because I believe dividend investing is a common way for many investors to help build an income stream over time – myself included!

Here is some evidence from just that!

August 2023 Dividend Income Update

However, there are many different approaches to dividend investing. Those approaches may lead to very different outcomes and those outcomes may be better suited to certain investors, depending on their financial needs and goals.

As with investing, it always “depends”.

In this webinar, I join Adrian Starinieri from Passive Income Investing, and Henry Mah from Your Ever Growing Income to discuss the potential benefits of dividend investing as a way to build wealth compared to other investing strategies. I will share what works for me/us as a hybrid investor and how it likely differs from both Adrian and Henry.

It should be a great chat and I hope you join the free event 🙂

Oct 12 - Three ways to build wealth with dividend investing

More Weekend Reading…

Oil bull Eric Nuttall mentioned the energy market is facing some of the ‘strongest fundamentals’ in two decades. My plan has always been to own some energy assets over time and I’ve been picking away at owning more energy since early 2022 along with owning more low-cost XAW for extra diversification. 

5 stocks I bought in 2022

Bob Lai wondered if Canadian banks are likely to cut their dividends?

Humm, well, I don’t think so this year but I would expect some dividend freezes (again) as we enter 2024 until our housing economy is on much better ground. 

The Globe and Mail hinted at multiple years of financial disruption ahead (subscription).

Seems economists now believe inflation is not transitory. From Rob Carrick:

“Economists have raised the idea that persistent inflation will keep rates higher than we’re used to, and now financial professionals are doing likewise. The end of cheap money was recently highlighted as a key trend over the next five to 10 years in a report from the CFA Institute called Future State of the Investment Industry.”

Excellent take from the Loonie Doctor on corporate class funds.

A reminder from Nelson to check out what a nearly $3 million DIY portfolio looks like. 

Incredible.

Jim Portfolio

Source: Nelson’s post.

From my friend Dividend Growth Investor:

“Warren Buffett: If I were retired, I had a million-dollar portfolio of stocks paying me $30,000 a year in dividends. my children were grown and the house was paid off, I wouldn’t worry too much about having a lot of cash around.”

I’m sure I’ll mention this with my friends at TD in the upcoming webinar but I like owning a mix of dividend stocks and cash for this reason – aligned to someone who is more famous than I am!

We do it because cash is the oxygen of independence, and – more importantly – we never want to be forced to sell the stocks we own.” – Morgan Housel, The Psychology of Money.

Save, Invest, Prosper!

As always, check my Deals page – partnerships and discounts to help you make the most out of your money – some of them you can’t find anywhere else!

Check out my partnerships with:

  • Dividend Stocks Rock
  • 5i Research
  • StockTrades.ca
  • LegalWills
  • Borrowell 
  • and more!

As always, you can also consider hiring me for some low-cost financial projections services – anytime.

Just reach out. 

This is a service founded by DIY investors for DIY investors without the conflict of any advice.

Have a great weekend!

Mark

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

36 Responses to "Weekend Reading – Where does oil go from here?"

  1. Although not a topic on this week’s reading list, I found the following AI test interesting.

    I asked Bing AI (Balanced chat) the following question:
    “If I have $700,000 invested in the S&P 500 and I withdraw $50,000 in each of the first two years, then $30,000 in each of the next two two years, and then $20,000 in each of the next two years, after which I don’t withdraw any funds, how long will my money last?”

    Bing’s answer is:
    “Assuming that you don’t withdraw any more funds after six years and that your investment earns a constant annual return of 10%, your money will last approximately 22 years.”

    Okay, what does Bing know that I don’t?

    Reply
  2. Hi Mark
    I looked at the $3M portfolio. In a previous edition you mentioned that you never want any one holding to be above a certain percentage within the whole portfolio. What percentage do you recommend? You also mentioned which sectors to include—I saw one article that shows the TSX having 20 sectors. Do you recommend all 20? Which ones should be considered? Is there a resource that shows each sector and the top 5 or 10 companies in each group? If one tries to introduce ETFs, could you buy only ETFs going forward and leave the balanced stock portion of the portfolio as is(on DRIP).

    Reply
    1. Hey Pat,

      I try and limit any individual stock to say 5% or so, not too much more. I would be concerned if any one stock was more than 10% and would likely. Every investor has their own thresholds of course!

      A good way to look for sector % is looking at broad-market ETFs in Canada like XIC, ZCN, VCN as examples.

      Hope that helps!
      Mark

      Reply
  3. Hi Mark,
    I have subscribed to your webinar with Henry Mah and Adrian Starinieri, I don’t know much about the latter, but follow you and Henry ( have 2 of his books ) for years. Since 2022, I own some canadian DGI stocks, and recently, bought ZSP for US exposure and diversification. I intend to have only canadian DGI and ZSP in my portfolio. What I am not sure, is their respective proportion . Should I go with 50/50 or 40/60 ( Canada/US ) or 60/40 ( Canada/US ) ? Any thought ? Thanks

    Reply
    1. Gosh, not easy to make decisions these days Lili but it all depends on your investing approach and plan. ZSP is excellent for U.S. exposure overall.

      Most experts say when it doubt, avoid some Canadian bias so they might argue that more U.S. and international assets is better vs. Canadian but the truth of that balance is only perfect in hindsight.

      FWIW, I am buying more low-cost ETFs as I approach semi-retirement and have been doing so for a few years now to diversify out of my Canadian dividend paying stocks.

      Mark

      Reply
  4. Hi Lloyd, I don’t disagree w you but it seems somehow stuff always works out in the long term, actually a couple of hours ago, even in the short term, re government shutdown averted….all is well. If they are able to keep employment growing each month (although at a lower number), govt tax revenues will keep rising and perhaps grow to help shrink deficits to $0. I think it will be ok. Mark provides a good example to keep invested through thick and thin re markets, and to keep collecting the dividends (except for that one big cut in Algonquin, he’s doing ok, and so can we). All the best.

    Reply
    1. Thanks, Jimmy. Yup, I still have some AQN albeit not very much (<0.5% of my portfolio now) since I sold off a bit earlier in the year.
      https://www.myownadvisor.ca/weekend-reading-dividends-can-get-cut-edition/

      The reality is, not every single stock can be a winner which is why with indexing you take all the good and bad stocks as a collective so you don’t need to choose. Pros and cons!

      I will stick with my plan. Time to release a new dividend income update soon with September gone.

      Have a great weekend,
      Mark

      Reply
    2. Lloyd (63, retired at 55) · Edit

      ‘Morning Jimmy. Ya, Congress pulled that one out of the fire but it was but one small example of the issues facing the States of America. I don’t have the same level of confidence that things will work out too favorably down there given the situation they have created.

      But the point was no one saw the issues wracking the global economy coming. No one possibly could. It behooves one to not put too much faith in inflation prognostication. Murphy may very well have been an optimist. 😉

      As to AQN, ya that one SUCKS. Should have terminated that holding a long time ago. But it can’t possibly sink right?

      https://www.youtube.com/watch?v=fgZgVNxhU04

      Reply
  5. Hello Mark; Thank you for your work on this site.The subjects and information is helpful for people to think about and prepare carefully for important financial matters.
    We have been basically dividend growth investors for many years, so inflation is well covered with the financial assets we hold ( along with no mortgage and a newer senior friendly home in a smallish rural type city) We also grow many of our own fruits and vegetables which is a big help in season. Along with cash, about 60% of our positions are in what I consider defensive sectors ( Utilities, Telcos, Consumer Staples , Health Care , Infrastructure and Pipelines)
    About 2 years ago, with oil and gas companies in a crisis state, we added modestly to a basket of strong positions (CNQ,SU,CVE,MEG,FRU, ARX and TOU) We also took positions in some smaller companies (BTE, WCP, HWX, and TVE) These positions have moved from a 3% portfolio weighting to over a 13% one. I know this sector is cyclical and at some point trimming will be prudent. With the supply/ demand issues, under investment in exploration and development, global hostilities and other factors, there seems to be more opportunities in this sector at present. I monitor our holdings very carefully while reinvesting some dividends. Take care Mike

    Reply
    1. Hi Mike: My wife and I are in the same boat as you, back in March of 2020 we bought a lot of CNQ. It is now around 24% of our portfolio. At $90 I keep thinking I should at least sell some of it and buy something that is low right now, like banks. Then Mark goes and writes an article suggesting we should boost our energy exposure 😉 I keep hearing that once they get their debt down they will be paying all their free cash flow to dividends/stock buybacks. What to do??

      Reply
        1. ‘Almost guaranteed’, reminds me of back in 1999 when I asked my financial advisor how long these high tech stocks would keep rising, he said “forever”. I think I will hang on a little longer to see how the next dividend raise looks, but my gut keeps telling me this could turn on a dime. I realize that oil and gas will be required for many years to come, and that their fundamentals have improved, but sometimes it just comes down to a popularity contest, and oil and gas are not very popular right now with a lot of people. The move to greener power and electricity is accelerating.

          Reply
          1. Ha, yes, I also realize O&G will be here for at least another generation if not in higher demand over the next 20-25 years. I will and do also own BEPC and a few other “greener” stocks just because it will come back into high favour at some point – I just don’t know when?!

            Mark

            Reply
            1. Just received an email from Simply Wall St indicating Steve Laut (independent director at CNQ) just sold 384K shares ($34 mil) at $88.91. That was 31% of his direct holdings. Does he know something we don’t?

              Reply
              1. Interesting. Maybe he wanted to cash out a bit? He’s in his early 60s now and worth tens of millions. I don’t have that issue so I will continue to hold and own CNQ for the foreseeable future. 🙂

                I continue to have CNQ, WCP and a few others on my buy list for the coming year or so but maybe we’ll get some more news on that, that changes my mind?!

                Mark

                Reply
    2. Thanks, Mike!

      I know of many DIY investors/stock investors that read this site and they continue to own a few “staples” and defensive stocks for the same reasons you do.

      I certainly didn’t go “all in” on oil and gas, I wish I invested more of course if I had the money to do so, but I also know investors that invested as much as they could to load up on many stocks in that sector when it was badly hurt – key names: CNQ, WCP, TOU in that order by many along with dashes of BTE, MEG. They are being rewarded now.

      Any particular stocks you’re a fan of in O&G sector beyond CNQ, WCP, TOU?

      I might try and buy more WCP before the end of the year myself…
      Mark

      Reply
      1. Hello Mark; I posted this comment in a reply.There seems to be several moving parts around the price of oil and Canadian companies i in the current environment. I monitor carefully company debt levels, cost of production, and returns to investors (buybacks, paying down debt, and dividends) within the context of the current price of oil. I particularly favour holding a core basket of well managed, proven equities in the sector that were able to do business well during the recent downturn. ( paying / raising dividends or at least maintaining them and quickly recovering payouts) I know at some point I will need to trim our exposure in several of the energy stocks we hold. Investing in commodity type assets is what I do around the “edges” of our portfolio. In the past, we trimmed some of these kinds of stocks and reinforced our dividend payers/ growers. Our largest energy positions are CNQ, SU, FRU, CPG, and WCP- I also like TOU, ARX and MEG. Take care Mike

        Reply
        1. Other favourites oil and gas stocks in my portfolio include CNQ, FRU, CVE, TOU and BTE. I sold ATH too early and now they are surging!!! Impossible to time the market.
          Mark, as you said, index funds should be part of your total investment. I can see there are more increase in dividends payouts, especially, special dividends coming. Gook luck to all.

          Reply
        2. Those seem like great companies to own, to take advantage of higher oil prices for the coming years. I also own CNQ, SU, WPC and would like to own some TOU at some point. Potentially if I can find some more $$ this fall, I will buy that but I really need to have for 2024 TFSA contributions. That’s our #1 priority right now. Figure we want/need $14k ready to go for that in 3 months.

          Reply
  6. We have seen predictions of “peak” oil extraction as well as “peak” oil consumption, So far neither has come about although peak oil extraction will occur at some time as reserves diminish. When is another question. So while we nonchalantly go about our lives consuming oil not just for our needs but also for pleasure (road trips), the price of oil has just one direction over time. Oil is not “just” for ICE engines either. It is a big part of our everyday lives as plastic is a petroleum derived product. Look at your clothing. Pretty sure close to 100% has some form of plastic unless you wear only cotton or wool. So while the price of oil will vary in the short term (look back over the last three year) it is “almost” bound to increase in price over time.
    Until something else comes along to replace oil, maybe in ICE engines, it is going around for a long time.

    As to “we never want to be forced to sell the stocks we own” if your retirement is based solely on your RIF/LIF you will have no choice to sell off the principal. Unless you can find something to pay you 20% of divs per year. Doubtfull
    Min withdrawal rate – 95 and older 20.00%

    RICARDO

    Reply
    1. I agree, on that, oil is just not for ICE and personal cars. We need it for so many other things and shifts away from O&G sector will be generational in nature.

      For early retirement/semi-retirement, that is for sure for us: “we never want to be forced to sell the stocks we own” but the reality is, when we get into our 70s and 80s (hopefully in good health) of course we intend to eat our capital and spend more. It just makes sense for our plan.

      Mark

      Reply
    2. Hi Ricardo,

      Agree with you for the RRIF minimum withdrawal. That is why people start to progressively deplete their RRSP before the RRIF conversion.

      The idea is to sell stocks during a good (great) year and withdraw that capital to pay living expenses and invest the surplus in your TFSA or non-registered account. By the time you’re 90, your RRIF should be empty.

      For example, Henry Mah sold stocks inside his RRIF in 2021 (excellent year to do that!) and withdrawed around $200K.

      Reply
      1. @Alex
        All depends on how much you have in there when you retire. For myself I am happily withdrawing the minimum from my LIF & RIF. Any excess goes to the TFSA and a non-registered account.
        The younger contributors have a longer time line to contribute and maybe even over contribute to their RRSP’s over time.
        Add in other circumstances, divorce comes to mind, and my philosophy is contribute as much as you can while you are young and then re-adjust when you hit the 50’s. Hopefully you’ll have a good reckoning as to your future life.

        RICARDO

        Reply
        1. Hi Ricardo,

          “All depends on how much you have in there when you retire”. This is exactly the point. Some of us benefited from good salaries and favorable circumstances and got a 7 digits RRSP in our late 40s/early 50s, allowing an early retirement in our 50s.

          That kind of RRSP is a fiscal timebomb, since if not using a depleting strategy in your 50s and 60s, you can get a multimillion portfolio when converting to a RRIF at 71 and need to annually withdraw a 6 digits amount from it.

          TFSA became available when I was 40. The younger generation can start contributing at 18 an prioritize it instead of the RRSP (the only exception would be matching the employer contribution to the RRSP). I expect that TFSA would represent the core of their retirement income as opposed to their elders.

          Since I (fortunately!) have no experiences with aforementioned special circumstances, I can’t comment on them.

          Reply
  7. Lloyd (retired, coming up on 63) · Edit

    “Recall experts were saying inflation was transitory”

    Would they have said that had they known of the war in Europe starting not long after they said that? I somehow think not.

    I’m not going to fault anyone for not seeing that issue in advance and I won’t fault anyone for not knowing when it will end or what further repercussions it will have on the global economy. We just don’t know.

    That’s like faulting a pilot for saying he/she expect a smooth flight and then hitting un-forecasted/unreported clear air turbulence.

    Then we have to consider the American Congress face planting themselves into a shutdown brick wall. How long is that going to last? And what’s the next really stupid thing they do? Follow that up with a presidential election in 2024 and no matter who wins/loses, all bets are off when it comes to their country, economy and thus the globe.

    Reply
    1. Thanks, Lloyd. I’m not going to fault the experts either. They have to make some predictions and put food on the table like the rest of us!

      But, given household debts are so high, and we’ve kicked the cheap-money-can down the road for so long, central banks have created a financial mess that it could take another decade of modest rates to dig out of. Seeing cheap money for so long was certainly a signal for us that it was wise to get out of debt sooner than later. It just wasn’t going to last.

      We’ll see what the future holds but I’m personally planning for modest interest rates for the coming 1-2 years at least into 2025. Thank goodness we’ll be mortgage free around April 2024. No long now! 😉
      Mark

      Reply
      1. Lloyd (63, retired at 55) · Edit

        For sure a lot of people got too comfortable with those almost negligible interest rates. It was prudent to consider that would not, could not, last and plan for more reasonable rates.

        I also have level of concern for the previous actions of governments (Covid funding, massive tax cuts, etc) flooding the economy with funds that artificially stoked the markets. I can’t imagine that happening again. We could be in for a very long time frame of narrow trading ranges. Makes dividends all the more appealing IMO.

        Reply
        1. I have the same government concerns, re: “flooding with funds”. The lack of fiscal responsibility is very concerning to me. Seems the only way they know how to manage any money is via increased taxation. I would like to be positive but very hard these days.

          Well, on that note, have a great weekend and take good care 🙂
          Mark

          Reply
          1. That’s always been a huge problem in Canada, manage money (the economy) with more taxation. It’s not about finding efficiencies, reducing waste or taxes. It’s about taxing more, collecting more, and spending more. If you know anything about the history of taxation in Canada, the level of taxation has gotten progressively worse over the years. Take a close look at all the taxes one now pays at all levels of gov’t.

            Reply
            1. Very well aware of our history when it comes to tax system and taxation. The government solutions, every term, are more boutique than before. The new FHSA is a perfect example. No kid needs another set of accounts to learn. Government could have easily increased TFSA contribution room and the issue of “saving” more money tax-free would be solved.

              The bureaucracy and politics associated with our tax system must cost us billions per year in waste.
              https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/first-home-savings-account.html

              I’m pretty fed up to be honest but there are no good political choices to vote for either. Very frustrating.
              Mark

              Reply
        2. ” I can’t imagine that happening again.”
          Politicians, of any stripe, are, if not anything else, very imaginative people. They imagine themselves getting re-elected time and time again through giving us everything they want but we can not afford. IMO they don’t really know how to manage money, just how to spend it without any due thought.

          RICARDO

          Reply

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