Wednesday was another memorable day in the Stock markets.
The S&P 500 closed down 1.2% and Toronto was down 1.3%. And the lows of the day were far lower than that. Oil was down as well.
My strategy has always been to continue to buy what appear to be under-valued companies as the market declines to the extent that I have funds to do so. I picked up 100 shares of Couche-Tard and a bit more Boston Pizza today.
To the extent that oil producers keep pumping at a level higher than consumption then the excess has to go into storage. It is understandable that at some point if there is little or no storage available then prices can get very low indeed. But at that point (which we may be at or near) then some producers will surely finally throw in the towel and cut back. If it is true that a significant percentage of producers today are struggling to meet variable costs and are far below total costs of production then that is unsustainable and production will decrease which would, at some point, cause prices to rise.
It is true, however that most commodity businesses have a history of providing poor returns for many companies. The very high returns of the entire oil industry in the years from about 2002 to mid 2014 may have been an anomaly created by a temporary shortage which in turn was largely or at least partly created by the OPEC cartel which existed to collude and limit production to keep prices high. If OPEC no longer has the market share, the cohesion and/or the willingness to create an artificial shortage then it would seem that very high oil prices will not be returning anytime soon. In a commodity market, the low cost producers can still make strong profits. Unfortunately, it is not at all clear that Canada has very much low-cost production.