Oil futures hit a two-and-a-half-year high Friday, with the
price of crude topping $112 per barrel.
Despite what you may have heard about peak oil theory, there is
no shortage of crude oil in the world. OPEC stressed that they
would boost crude production to make up for any shortfalls, which
is good news. The bad news is that
) warned that OPEC's spare capacity likely dropped below 2 million
barrels per day, which is not very reassuring when Libya was
producing approximately 1.6 million barrels per day before the
country's civil war broke out.
We'll have to watch this situation play out to know who is
right, but what you really need to focus on in this situation are
neighboring Middle East nations, because the next potential dominos
in the chain are Bahrain and Saudi Arabia. Saudi Arabia is the
world's largest oil producer, and disruptions to oil productions
there would be significant to global output and would put firm
upward pressure on oil prices.
While it's too early to know if this will happen, it does appear
that we are in an environment that will support higher oil prices
in the near to medium term. And the best way for investors to
capitalize on this trend is with three oil ETFs and one top crude
Marathon Oil Stock Going the Distance
What is keeping us from increasing our exposure to the sector is
that there aren't a lot of good oil companies to buy. Between low
natural gas prices and idle drilling rigs, many U.S. oil companies
are not as profitable as you might believe.
The real profits right now are being made in the refinery
business, where the spread between heavy and light crude allows
) to make bigger profits.
The Texas-based company explores for, produces and distributes
oil and gas products throughout several countries, including the
United States, Canada, Norway and Libya.
In 2009, Marathon reported reserves of 1.7 billion barrels of
oil equivalent, including 600 million barrels of synthetic oil from
oil sands. The company's Marathon Petroleum subsidiary operates
seven refineries with a total capacity of 1.2 million barrels of
crude oil per day.
Marathon Petroleum supplies about 4,600 Marathon gas stations,
as well as 1,600 Speedway SuperAmerica gas stations in the United
States. Its international exposure and strong U.S. network are what
make this the perfect play right now.
In the latest quarter, the company's sales rose 27% to $20.2
billion. During the same period, Marathon's earnings rose 98% to
$709 million, or 99 cents per share, compared with $355 million, or
50 cents per share. The analyst community is now expecting
first-quarter sales growth of 25% and earnings growth of 166%.
This oil stock will put you in an excellent position to profit
from the rise in oil prices. Buy MRO below $54.
3 Oil ETFs to Buy
On the exchange-traded fund (ETF) front, I like a trio of funds
that gives us exposure to a number of different points of strength
that are emerging in the oil sector.
First off, we have the explorer. The
iShares Dow Jones U.S. Oil & Gas Exploration
) consists of companies that actually go out, find and drill for
crude oil and natural gas. The fund's major holdings include big
names in the oil industry such as
Once crude resources are found, they must be refined and turned
into gasoline and other products for consumer consumption. That
brings us to our next oil ETF. The
iShares Dow Jones U.S. Energy Fund
) profits from the big companies that manage this process.
) and Marathon Oil take crude oil, clean it and help turn it into
the everyday products that we use. This oil ETF also contains
), which not only provide refining and other services, but also
sell products directly through their own gas-station chains.
Before any of the companies in the first two oil ETFs can get
anything done, they must rely on the resources provided by the
companies in our third ETF pick, the
iShares Dow Jones U.S. Oil Equipment Index
). The companies in this oil ETF supply the machinery and tools
necessary to drill for and process oil.
IEZ includes 44 holdings, with major interest in big names such
National Oilwell Varco
). I like this fund because its equipment-related companies don't
feel the impact of fluctuating oil prices as directly as companies
in other funds do.