I bought some shares in an oil ETF a fews weeks ago my investment rationale was:<p>1. If the price stays low I win because my gas will be cheaper (essentially hedging my gas costs). If the price rises my cost at the pump will increase but will be offset some by gains on the ETF.<p>2. Geopolitical flares up typically drive oil prices higher. Low oil prices destabilize a lot of countries and increase the probability of these issues. It's almost like low oil prices will inevitably lead to high oil prices.<p>Of course, this is all speculative (mostly for fun for me although it is real money). I would never invest money I couldn't lose based on this loose reasoning. But now I get to call myself an "oil man."
Well, if the stock market reacts by savaging the prices of these companies, sounds to me like a fantastic long-term investment opportunity will be opening up. However large this may be, it's still a transient price drop with a lot of politics in it, and in the long term prices are still only going to go back up. Most of that oil in the ground is still going to be pumped up at much higher prices, and not <i>all</i> that many years from now.
In case anyone forgets that it can go too far in the opposite direction: <a href="http://en.wikipedia.org/wiki/Enron_scandal#Mark-to-market_accounting" rel="nofollow">http://en.wikipedia.org/wiki/Enron_scandal#Mark-to-market_ac...</a>
Isn't the price being held at an unsustainably low price by OPEC? If so, then any accounting problems would be short lived. Once OPEC cuts supply, the prices will bounce back to ~$100/barrel, I would expect.
The article's a bit melodramatic about what is everyday accounting. The price of oil always fluctuates so accountants have to use some historical price for calculating reserves so the figure will always be off at a later date when the price has moved. Pretty much anyone capable of reading and understanding the accounts of oil companies will know that.
Its useful to point out that although the standard accounting method was used for the official numbers, at least one of the drilling companies in this article also included the impact of current prices on their reserves. Investors care about this, know about it, and at least some of the the companies give them information so it can be properly priced in.
Accounting usually tends to trail events. That's not a bad thing. More problems come from valuations of future events.<p>Oil may go up tomorrow. The short-term price is driven more by political events than drilling activity.