Trading oilPod Chats: Gerard Murray on Trading Oil & Gas. Photo: Zbynek Burival (Unsplash)

Pod Chats: Gerard Murray on Trading Oil & Gas

Two Blokes Trading

Two Blokes Trading Episode 113: Fracking Hell with Gerard Murray. Click above to listen to the full episode

Gerard Murray has been an oil and gas retail trader since the age of 17.

In this discussion with the Two Blokes Trading podcast, he offers some insight into this unique area of investing.

Here he covers the important fundamentals for investors looking to invest in oil and gas, along with the future of the industry and whether renewable energy is likely to be a major factor any time soon.

Read some select excerpts below, or listen to the full interview here...

I’m all for development in terms of renewables and seeing that come true. But until such time that gap can be filled, we still have a huge reliance on oil and gas.Gerard Murray

On getting into gas and oil...

When I started trading, it came off the back of having an interest in engineering. The family worked in the oil and gas industry and they had some links to small cap oil and gas companies. My uncles were directors in an Irish oil companies and then they were shareholders. From a young age I started to go to AGMs and EGMs and that was my first introduction to the oil and gas industry, and that’s how I fell into trading in a way. It’s a strange industry because it’s huge but it's got a tiny door to get into. I came from an engineering background and my whole thing on it was, I’d love to get into the industry and try and just learn all about the operational side of it and that was the first step. It was almost an interest and passion in the oil and gas industry that led me to trading and investing in smaller oil companies. I think I was 17/18 when I started, and I’m 32 now.

On trading other markets...

Actually 99% of my (trading) is oil and gas. I’ve gone outside the industry and I’ve looked at mining and some tech companies, but I think ultimately when you take a position and you’re very comfortable with the material and the research you’re doing, I just find it slightly unsettling when I don’t understand the fundamentals of a business properly, so I’ve always just tended to lean towards the oil and gas side as it’s what I know. For the set up I use and my strategy, I prefer to stick to what I know.

On his style of trading...

Typically what I look for is companies that I guess are not in a news-rich period. So when it’s very quiet, possibly in six, eight, 10 months they’re going to move into a phase of drilling, or development, when there’s expected news, so generally when I open a position and take a position in a company, it’s very quiet in chart rooms, there’s probably negative sentiment and very little happening. But ultimately it’s a case of sitting and waiting for the position to build, for the market to come to it and then as drilling is announced and plans come into play, price just naturally moves, and you’d normally get anywhere between a 25-50% rise in share price up to that point. That’s when you start getting into the more riskier play. If you want to take on the drill results you can wait around for that, but generally I do de-risk and lease some on the table for an actual binary play of whether they do strike oil or hit gas, and at that point I’m kind of de-risking and moving into another company that’s got news in another 8-12 months.

On getting his data...

Because I worked in the oil and gas industry, I lived and worked in Aberdeen for four years and I studied in Aberdeen University, so it’s a real hub of information in terms of what companies are out there. There are a couple of good things, one area you can look at would be looking at what companies have nearly IPO’d, there’s a lot of good websites out there - I use Vox - it gives you an overview of what IPO companies are available and then it’s a case of just doing your research and seeing what their timelines are.

I also use the likes of Twitter and any oil and gas websites out there, you can get an idea of what companies are in the market and what their plans are and then it’s just a case of looking at the LSE chat boards and driving the information yourself to see what they expect the timelines are. There’s no easy way with it, you’ve got to do the research. If I could give any advice, it would probably be to check out those newly IPO’d companies and maybe go onto Vox and you can start to figure out timelines yourself.

On oil crashes...

I’ve had a few good ones and definitely had some bad ones. I think the whole thing about it, it’s just trying to limit your exposure to it. Obviously there was a huge oil crash in 2000 and in 2014 the price of oil fell from what, $120 a barrel and then its $26 a barrel. (The cause of that) really was supply and demand, there was the US fracking that came in, they announced that they would be able to supply their own oil. At one point the US were importing nearly 12 million barrels a day themselves and it came about through fracking that they didn’t need to import anymore, so fracking took over. They then became an exporter, Saudi Arabia didn’t start to reduce its output and actually it just became an oil glut, and as a result oil prices fell dramatically.

Fracking I’d say was one of the main drivers for that because it could come onstream quiet quickly at the time, it was quite cheap to produce and America not being one of the OPEC countries, they could basically produce, produce and produce and they over-supplied the market. Also, I think the economic downturn has had an effect, China has slowed down slightly and all those things are drivers on price.

On renewables...

I’m all for renewable energy, I think it’s hugely important in terms of a vibrant energy mix. But the likes of natural gas and petroleum, I was reading an article this morning, the aviation industry is 100% based on oil and gas, entirely dependent, and you’ve even got to date our transport systems, 85% of it's driven off petroleum. In Ireland, this summer, 90% of our electricity came from natural gas because of the weather - our summer has been so nice our wind turbines which once supplied 35% of our electricity needs couldn’t supply. I’m all for development in terms of renewables and seeing that come true, but until such time that gap can be filled, we still have a huge reliance on oil and gas.

On fracking...

Fracking has been used for a long time offshore, it’s just a way of perforating a reservoir effectively. In a sense it’s not a new technology, it's more about the ban onshore, local authorities don’t want it, they don’t want to see it happen, in fact any onshore drilling at moment in UK & Ireland is pretty much not getting the go ahead, it's being delayed and there are a lot of companies suffering with that at the moment. That in itself is putting off a lot of these oil companies even applying for licences, because there’s obviously a lot of negative press around fracking. My personal view on it is I can’t see the issue of it, I’ve looked at some of the reports where you see people turn on their taps in America and gas comes through, that’s outrageous.

Want to listen to Gerard’s full interview with Two Blokes Trading? Listen here to Episode 113: Fracking Hell with Gerard Murray