Oil Tumbles Further

Even with oil production now finally beginning to drop a little and crude inventories dropping prices of crude continue to fall (under $43/barrel today).  I guess maybe investors realize that almost every shale producer has been drilling and not fracking–and in a heartbeat can turn up the spigot.  In the Bakken alone there are over 1,000 wells awaiting fracking–but it likely that it will take $50 oil to justify the investment–likely capping gains of huge magnitudes. This is good reason to not be holding MLP upstream energy companies or their preferreds. I read an article on Seeking Alpha yesterday that advocates purchase of the convertible preferred stock of FX Energy–these $25/share preferreds are now trading at $14.39 and a current yield of 16.1%.  This is tempting, but dangerous for an income investor.

Dabbling in preferred stocks (or MLP units) of these broken companies is fine–IF YOU ARE A SPECULATOR. If you are a income investor try your best to resist the temptation to purchase these shares—this is exactly what we are doing (and we are tempted to ‘dabble’).  We like to watch our account values moves higher–not lower.