Market Overview

ETFs For Peak Oil


Peak oil is a misunderstood phenomenon, but the reality is the world is probably in its throes right now. The base definition of peak oil is the time at which new discoveries and production cannot keep pace with demand.

Sound familiar? Depending on the estimate, the world currently consumes 86 million to 88 million barrels of oil per day, but it is worth noting that one of the key reasons that many analysts and banks maintain such high forecasts for oil going forward is because supply simply isn't there to keep up with demand.

Translation: For all of the new discoveries out there, Brazil's included, they just can't keep pace with declines in places like Alaska, the North Sea and Saudi Arabia, just to name a few. Peak oil is here and these are the ETFs to profit with.

1) U.S. Brent Oil Fund (NYSE: BNO): The spread between Brent crude and West Texas Intermediate remains near historically wide levels and while there is debate as to how that spread will narrow, be it an increase in the latter or a decrease in the former, Brent is home to some backwardation and the more robust price forecasts. Brent is probably the bigger winner than WTI under a peak oil scenario.

2) EGShares Dow Jones Emerging Markets Energy Titans ETF (NYSE: EEO): An equity play, EEO devotes over a third of its country weight to Russia, one of the few countries in the world that still has sizable untapped oil discoveries. To its credit, Russia is actually pumping oil at levels that are at or near post-Soviet era records. EEO should boost its Brazil exposure (just our opinion), but the China exposure is useful in that companies such as PetroChina (NYSE: PTR) and Cnooc (NYSE: CEO) are likely to continue their acquisition binges to cope with peak oil.

3) PowerShares S&P SmallCap Energy ETF (Nasdaq: PSCE): A former favorite of this space, PSCE is a useful peak oil play because the ETF is littered with potential takeover targets. Even after a recent move higher, PSCE is an intriguing buy around $40 and could offer 10% or more upside from there.

4) First Trust ISE-Revere Natural Gas ETF (NYSE: FCG): Maybe, just maybe, natural gas will have its day in the sun. Plenty of oil majors are making significant investments in oil's cheaper, cleaner burning rival. Natural gas has had some difficulty usurping oil, but peak oil may force that change. FCG has just under $460 million in assets under management and a move above resistance at $24 would be a fresh buy signal.

Posted-In: Long Ideas News Sector ETFs Short Ideas Specialty ETFs Small Cap Analysis Emerging Market ETFs Technicals


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