When you really look at the utility of the fossil fuel industry as an investment, a warning that comes to mind is “volatility.”
Today we find two separate headlines that show the many spikes and valleys of the industry. In one corner, we have a piece on oil reaching a six month high just below $50 per barrel. (This is still 1/3 of the June 2008 price of $151 per barrel.
In the other corner, we see the bankruptcy filings today of SandRidge Energy Inc (SDOC.PK) and Breitburn Energy Partners LP (BBEP.O).
There are many sound reasons why these two stories occurred on the same day. The past plummet of energy prices is what caused the bankruptcy…and they had to come up at some point.
What should be noted by an investor is how they came about in the first place. We have an expensive energy extraction system like fracking, upsetting the OPEC nations (particularly Saudi Arabia), under the significant reality of Iran upping their energy exports, while the world seems to want less of the product overall.
We will write much more on this in the coming days, but this news is a great snapshot of the risks facing investors exposed to the fossil fuel industry.