Commodity prices tend to go up and down, when they go up the profits flow to the companies. If the company is a low cost producer of the commodity, then the bank till is ringing or from the comic books Scrooge McDuck is swimming in money. The trick is knowing which producers are the low cost ones and riding the wave.
In an article by Isabel Debre of the Associated Press, oil giant Saudi Aramco said profit soared 0ver 80% in the first 3 months as oil prices went up. The effect was to push up net income to $39.5 billion versus $21.7 billion a year ago. With the rise in oil prices comes a rise in stock prices and Saudi Aramco overtook Apple as the world’s most valuable company with a market cap of $2.43 trillion.
The oil group kept its dividend payout of $18.8 billion and because the government of Saudi Arabia owns 98% of the company, its revenues received a good boost in income.
The cost of oil is still less than $5, however the issue is some of the easiest to drill petroleum is quickly being uses, however Saudi Arabia still has over a 100 year supply to the world, some of the oil will be a little more expensive, but much less than shale oil.
Linking to dividend paying stocks, if you wish to own any commodity stock, you will need to know 2 pieces of information – cost to produce and price to sell. Public companies will tell analysts how much it costs to produce and there is always an exchange where futures sell and many financial press report it. For oil prices, the Wall Street Journal shows the price everyday. After you are aware of the 2 prices, you can then pick the best companies to invest in, whether it is to catch a wave or to hold long term.
There are more questions than answers, till the next time – to raising questions.