The oil patch is aflutter today on news that the U.S. could
become the world's largest oil producer by 2020. That factoid
comes courtesy of the International Energy Agency, which said the
U.S. will surpass Saudi Arabia as the world's largest crude
producer by 2020. By 2030, North America will be a net oil
exporter, something the U.S. was last year, according to IEA.
"The recent rebound in US oil and gas production ... is
spurring economic activity ... and steadily changing the role of
North America in global energy trade,"
IEA said in its World Energy Outlook
released over the weekend.
Assuming the IEA is correct in its prediction that crude will
rise to $125 per barrel by 2035, this could be very good news
indeed for the U.S. economy. It should also prove to be excellent
news for the following news going forward.
Market Vectors Unconventional Oil & Gas ETF (NYSE:
All of sudden, the Market Vectors Unconventional Oil & Gas
ETF becomes more than just a new ETF with a cute ticker. FRAK,
which debuted in February, has thus far struggled to attract to
assets with less than $18 million heading into the start of
trading today. To some extent, FRAK's struggles on the asset
front are understandable. There are plenty of large-cap heavy
on the market so standing out can be difficult.
However, that is exactly what FRAK has the potential to do
assuming the U.S. really does become the world's king of oil
output. All of FRAK's constituents have some exposure to North
American shale or oil sands production. One big reason to like
FRAK: If an investor cannot own shares of EOG Resources (NYSE:
) directly, FRAK is the ETF with largest weight to the stock at
over seven percent.
EOG is the dominant producer in the Eagle Ford Shale, a
primary reason why U.S. oil production is surging. Texas-based
EOG has consistently raised its Eagle Ford reserve estimates to
the point where it is reasonable to expect this well-run company
will expand its leadership role among U.S. oil and gas
PowerShares Dynamic Energy Sector Portfolio (NYSE:
The PowerShares Dynamic Energy Sector Portfolio has decent size
with over $109 million in AUM, but this is another fund that has
a tendency to get lost in the shuffle of oil ETFs. That is a
shame because PXI has sharply outperformed larger rivals such as
the Energy Select Sector SPDR (NYSE:
) this year.
PXI is also
an under-appreciated shale play
as its 58 constituents include EOG, Hess (NYSE:
) and some of the major integrated names. What makes PXI most
appealing is diversity. The ETF offers exposure to integrated
names, independents, refiners and pipeline firms.
SPDR S&P Oil & Gas Exploration & Production
The SPDR S&P Oil & Gas Exploration & Production ETF,
a favorite of short-term traders because of the ETF's volatile
nature, has a tendency to make an appearance on shale ETF lists.
XOP's presence on this list is validated for several reasons.
First, XOP is heavily tilted to exploration and production
firms (74.5 percent of the fund's weight), meaning the fund's
constituency is not highly exposed to refining margins. Second,
XOP is essentially an equal weight product, so even the largest
independents such as ConocoPhillips (NYSE:
) and Anadarko Petroleum (NYSE:
) do not dominate this fund.
Third, and on a related note, XOP is not excessively weighted
to its holdings that have the largest market values. The related
note there is XOP is home to plenty of mid-cap names that have
been rumored to be takeover targets. With U.S. oil production
rising, but output slowing for some of the major integrateds,
Exxon in particular, a fresh wave of mergers and acquisitions
activity in the oil patch could come to pass. That could be a
boon down the road for XOP investors.
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