With the continued strength of oil prices, many investors are looking at a long-term investing strategy of putting their money in oil stocks. There could be some issues with specific country risk for oil stocks that many investors might not have thought about before when considering their long-term investing strategy. While we all are aware of Venezuela and the Chavez regime being not very friendly at all to international corporations, the recent news of Chevron Corporation (NYSE/CVX) executives being denied the ability to leave and facing prosecution for criminal charges in Brazil is definitely a new twist for oil stocks and their investors.
Let’s start with where oil prices are headed. The pullback in some of the other commodities has led some people to believe that oil prices are setting up for a sell-off. While there are some fundamental characteristics that might lead some to believe that to be the case, with geopolitical risk in the markets high and demand increasing, it looks highly likely that oil prices will stay elevated for some time. If this were to be the case, it should be good news for oil stocks and those interested in long-term investing, as the high oil prices will maintain earnings growth and fund new exploratory work to develop new oil fields.
Of course, I’m not the only one who believes this, as the technical situation with oil prices is telling us that the big money funds are positioning themselves for a spike upwards. Of course, no one can predict the future for oil stocks, but if oil prices break above current resistance levels, then look for a quick move up to $120.00.
Chevron employees are now facing criminal charges with the potential of being jailed for two to five years. I’m sure several oil stocks executives are now rethinking their Brazilian properties, as some leakages are normal, with this latest leak being less than one barrel per day. I wouldn’t be surprised to see more properties being put up for sale as executives of oil stocks don’t want these kinds of potential repercussions.
The troubling situation for investors in oil stocks is that if a company has rights to an oil field in Brazil, or even perhaps some of the other South American nations, there is the possibility that corporations might revisit their desire to work in that region. If you were calculating oil stocks based on oil reserves, those assumptions might change now. There are reports of Anadarko Petroleum being interested in selling their rights to 700,000 acres off the coast of Brazil.
As an investor in oil stocks, even though I think a spike in oil prices is possible, I would certainly research extensively where these properties are located. If oil stocks have properties in areas that might endanger the ongoing operations or imprison executives, these are drastic changes in management. While Chevron is big enough to absorb the millions in fines and even jailed executives, if this were to happen to one of the smaller oil stocks, you could be facing a big hit in the share price, regardless of where oil prices are trading. There is no substitute for due diligence.