4 ETFs For The Russian Oil Boom (RSX, IXC, NORW)
It's fair to say Russia is already in the midst of an oil boom. While the country's April output slipped 0.3% to 10.33 million barrels per day, the lowest level of 2012, average daily production this year has been 10.36 million barrels per day. Not only is that a post-Soviet era high, it's more than 10 million barrels per day OPEC member Saudi Arabia, the world's largest oil exporter, says it's currently pumping.
In the future, Russia has the potential to pump even more crude. A lot more. The country's Arctic region, which includes the oil-rich Kara Sea, is one of the world's last great untapped oil frontiers. By some estimates the Kara Sea holds up to 37 billion barrels of reserves. That's why BP (NYSE: BP) was dogged in its efforts to hammer out a deal with OAO Rosneft, Russia's largest oil company, last year. It's why Exxon Mobil (NYSE: XOM) was so willing to take BP's place when the British oil giant's Rosneft deal collapsed. Exxon and Rosneft could spend $500 billion or more exploring the Kara Sea. And those lush reserves are why European majors Statoil (NYSE: STO) and Eni SpA (NYSE: E) have also signed deals with Rosneft.
Still, this is Russia we're talking about. Rampant corruption and a hostile political environment can make for some treacherous seas for Western firms when it comes to Russia's energy industry, which accounts for half of the Kremlin's revenue. These ETFs could prove useful for investors looking to avoid single-stock exposure to Russia's oil story.
Market Vectors Russia ETF (NYSE: RSX) At the moment, the chart for RSX, the oldest, largest and most liquid Russia ETF, is a mess. Same goes for the rival iShares MSCI Russia Capped Index Fund (NYSE: ERUS), a suitable replacement for RSX. In the case of RSX, the ETF has violated two critical support areas in the past five weeks and now looks poised to retest its October 2011 lows around $23.
Russian energy giants Lukoil, Gazprom and Rosneft combine for over 21% of RSX's weight and the energy sector overall receives a 39% allocation in RSX. Those with a taste for risk can try the Market Vectors Russia Small-Cap ETF (NYSE: RSXJ), which has a 24.4% allocation to energy names.
iShares S&P Global Energy Index Fund (NYSE: IXC) Unfortunately, the iShares S&P Global Energy Index Fund doesn't offer a better technical outlook than RSX or ERUS at the moment. Following a violation of support at $38, it looks like another 5% could easily be shaved off IXC. With that in mind, it's critical to remember the Russian Arctic oil theme is a long-term bet and IXC is home to plenty of blue chip oil names that have already signed Russian pacts or want to at some point.
Exxon, Eni and Statoil combine for over 18% of IXC's weight. Royal Dutch Shell (NYSE: RDS-A), BP and Total (NYSE: TOT), Europe's three largest oil companies, combine for another 17.75%. It's hard to imagine that at least two of those three European majors don't make legitimate efforts to get involved with the Russian Arctic. BP and Shell have had their struggles in Russia, but the reserves are too compelling to ignore.
Statoil accounts for 19.6% of NORW's weight and that company signed an agreement with Rosneft last weekend that could see the two firms explore areas with 2 billion metric tons of oil and 1.8 trillion cubic meters of gas. Future investment for these areas in the Barents Sea, the Perseyevsky, and three fields in the Sea of Okhotsk could reach up to $40 billion, according to Reuters.
Global X China Energy ETF (NYSE: CHIE) The Global X China Energy ETF is the wild card play on this list. China is an important destination for Russian crude exports and Chinese oil majors have not been shy about making international asset acquisitions. Whether or not the already cozy oil relationship between the two emerging markets powers translates into China's entry into the Russian Arctic remains to be seen.
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