Oil producers prepare for prices to halve to $20 a barrel

 The world’s leading oil producers are preparing for the possibility of oil prices halving to $20 a barrel after a second day of financial market turmoil saw a fresh slide in crude, the lowest iron ore prices in a decade, and losses on global stock markets. 

Alexei Moiseev, Russia’s deputy finance minister, told Reuters: “If oil goes to $20, we will need to do additional [spending] cuts. Clearly we have shown that we are very willing to cut fiscal spending in line with an oil price at $60, for example. In order for us to be long-term sustainable [with the] oil price at $40, we need to do additional cuts, but if the oil price goes to $20 we need to do even more cuts.” 

Russia and Saudi Arabia – the world’s two biggest oil producers – both increased spending when oil prices rose to well above $100 a barrel. The fall from a recent peak of $115 a barrel in August 2014 has left all Opec members in financial difficulty, but Saudi Arabia has refused to relent on a strategy of using a low crude price to knock out US shale producers. Hopes that Opec would announce production curbs to push prices up were dashed when the cartel met in Vienna last Friday, triggering the latest downward lurch in the cost of oil.

DYI Comments:  DYI has been pounding the table for some time regarding natural resource mutual funds.  An excellent opportunity to dollar cost average into your favorite funds; ours of course, is Vanguard Energy Fund symbol VGENX  and Vanguard Precious Metals & Mining Fund symbol VGPMX.  Both have been hit hard by declining oil/gas or precious metals prices.  Please note prices for these funds could very easily bottom form for as long as 2 or 3 years.  At this time dollar cost average only.  Unless oil drops to the teenager level then lump summing is a go.  Recommend Adams Natural Resource Fund symbol PEO a closed end fund.

Our model portfolio remains very conservative due to massive overvaluation for stocks and bonds. Only recommend up to 22% in gold/natural resource funds.

Updated Monthly

AGGRESSIVE PORTFOLIO - ACTIVE ALLOCATION -  12/1/15

Active Allocation Bands (excluding cash) 0% to 60%

78% - Cash -Short Term Bond Index - VBIRX

22% -Gold- Precious Metals & Mining - VGPMX

 0% -Lt. Bonds- Long Term Bond Index - VBLTX

 0% -Stocks- Total Stock Market Index - VTSAX

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