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Welcome to Penny Oil Stocks!
Penny Oil Stocks Volatility Factors: With the price of a barrel of oil again over $100, many investors are considering penny oil stocks. If ever there were stocks for which understanding factors affecting the stock is important, penny oil stocks are certainly the ones.
Penny Oil Stocks
Penny stocks are more risky than big board stocks because penny oil stocks can be extremely volatile for reasons difficult to predict. Even when market conditions look favorable for penny oil stocks, they must be considered as highly speculative and entered into with great care. For the average investor the adage of do not bet on it unless you can afford to lose it all, is applicable.
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What makes penny oil stocks so volatile and speculative? The first things you need to understand are the factors that cause both unexpected upward and downward volatility of penny oil stocks. The overwhelming factor determining volatility in oil stocks is the value of oil. The price of oil per barrel has more effect than overall performance of an oil company and its stock. Other factors that have a significant impact on the volatility of oil stocks are the difficulties of exploration and development.
Find the Best projected Penny Oil Stocks for 2012!
If your chosen penny oil stock company happens to get an indication of success in drilling a wildcat well that will always cause a rise in the value of the stock. If at the same time the price of oil rises at a rate faster than the recent average movement for oil prices, you may have hit the mother lode of penny stock investments.
Unfortunately, the reverse can be true just as easily. If the new discovery that was so promising does not live up to expectations stock prices will suffer. If simultaneously the price of oil drops precipitously, as can happen, you could lose all your investment in an instant.
Between those two extremes are a hundred mini factors that spark rumors of new discoveries or extension of current oil fields that tend to help stock prices. Most of these are caused by technical factors way beyond the ability of even the seasoned investor to comprehend.
While you sleep at night, some bright Petrophysical engineer is out on wildcat well running down-hole electronic and nuclear surveys to determine the presence of water. The ability of that young engineer can change the fortunes of the company whose penny stock you have purchased.
The engineer is looking for water because to date science has not found a way to detect oil underground. What they detect is water and the simple subtraction of the amount of water percentage from 100 percent leaves the expected percentage of hydrocarbons to be produced. Some of the surveys run can predict if the hydrocarbons are liquid oil, oil condensate or gas. Even with excellent petrophysical survey results, problems in completion of the well can turn the picture inside out overnight.
So any investor considering penny oil stocks must do get as much correct information as possible. Failure to do so is the same as rolling the dice.