The Origin Energy Ltd (ASX: ORG) share price was always going to go nuts if this happened.
The Origin Energy Ltd Share Price
As can be seen in the chart above, Origin Energy shareholders have had a very good 12 months, to say the least. However, if we extend our view back five years from today, the company's share price is down a far less appealing 47%. Ouch!
So why has the Origin Energy share price rallied this past year? I hear you ask.
The simple answer: Oil.
The extended answer is: OPEC, the Organisation of Petroleum Exporting Countries. OPEC is a cartel of a few more than a dozen countries (including Saudi Arabia, Iran and others). They control more than their share of the global oil market. Most of the member countries however, rely on high oil prices to keep their economies growing.
So, when oil did this…
They, after letting oil prices collapse long enough to rid the market of high-cost producers from the USA and Canada, (eventually) moved to cut their own production and drive prices higher.
Sure enough…
Oil prices rallied.
During this time, Origin, a major energy company, went down and up with the oil price. It slashed costs to resurrect its balance sheet and scrapped its dividend.
Foolish Takeaway
Origin Energy's tumultuous ride over the past 12 months is part of the natural cycle in the resources industry. Booms follow busts which follow booms. For the energy sector, the duration of these cycles are shorter and can be more pronounced than those of longer life commodities such as gold, coal, copper and iron ore.
Given the design of the industry, I choose to avoid it altogether and instead focus my attention on quality businesses which can control the price of their products. These companies generally pay a steady dividend stream to shareholders.
