The XOI, Arca Oil & gas Index is an index of the oil AMEX (American Stock Exchange), the New York Stock Exchange, created in 1984. It consists of 19 major oil companies (Exxon Mobil, Chevron, BP PetroChina, ConocoPhillips, Statoil, Petróleo Brasileiro, ...). Its acronym is: XOI.
On the graph below, you can see the evolution of the XOI index (blue line) and the oil price per barrel (WTI, orange line) since august 1983.
Since record low oil price in 1998, the XOI index has experienced three major cycles characterized by an increased index value followed by a decrease (the current decline is the 3rd one). The three up period can be explained by the growth in global demand and peak production of conventional oil (in short). The three down period can be explained as follows:
1. April 2001 to November 2003: World Trade Center and Iraq War: "voluntary" increased in production to prevent oil prices soaring.
2. Systemic Crisis in 2008, related to the record oil prices in 2008 and reduced demand.
3. US shale oil production destabilizes temporarily the balancecontinuouslyction : increased production.
These declines are normal, despite the peak production of conventional oil (2005?), the oil price can not increase continuously. These large drops can be seen as "natural" events or "catalysts".
What is interesting for us is the rhythm of these cycles over the last 16 years. I am not trying to build an economic model but based on empirical observations, I am trying to determine a buying window for oil and oil companies.
As you noticed, there are 4-5 years between two minimum and 6-7 years between two maximum or peaks (from a theoretical point of view, "tempo" is explained very well, but this is not the point today).
- Cycle 1, 1998-2003: up 27 months and down 21 months (+/-) with almost the same index level at start and end of the cycle.
- Cycle 2, 2003-2009: up 65 month and down 10 months (+/-) with a long and slow increased followed first by slow and then violent fall.
- Cycle 3, 2008-2015? : up 63 months and down?.
This decline in this third cycle is much like the second one, after a 63-month raises, a violent decline after reaching the same price level (this is explained with the marginal cost of oil).
The three minimums took place between November and March, which is statistically the "wrong" season for oil. The three peaks are between April and June, which is the beginning of the "good" season for oil.
It is difficult to know how far down the oil price and the XOI index will go. One could expect a price range between the current price and the lowest price of 2008. However if the XOI index keeps the same "tempo", it is likely that the decline will end in 2015 and then we will have the same investment opportunities during the year as of in1998, 2003 and 2009! I did not write an analysis in 1998, but in 2003 and 2009, I have already advised oil, I will do the same thing today!
See you in 2022 for the next cycle and do not forget to sell in the next peak in 2020-21!
Comments: XOI is composed of major oil companies. They have capitalisations of tens of billions of dollars, or even of hundreds of billions. The XOI was more resilient to the decline in oil prices that many oil juniors. Some juniors are already valued today to a price below their (lowest) value in 2008, the value of their net assets and even their reserves of cash...
Note : XOI is composed of major oil companies. They have capitalizations of tens of billions of dollars, or even of hundreds of billions. The XOI was more resilient to the decline in oil prices that many oil juniors. Some juniors have already today a price below their low of 2008, the value of their net assets and even their reserves of cash...
Dr Thomas Chaize