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Summary

  • Future long-term energy demand is set to grow substantially, thanks to emerging economies.
  • Seasonal short-term demand effect: US vehicle miles are on the rise, driving US gasoline prices higher.
  • Short-term risks: While oil production in troubled Libya, Syria, Nigeria is already suffering, Iraq is the big risk now (today the 2nd-largest OPEC producer).
  • The Oil & Gas sector (Integrated, Exploration/Production, Services, Infrastructure e.g. MLPs, LNG shipping) continues to outperform stock market.
  • The Powershares DB Commodity Index ETF (50% in oil-related commodities) is a cheaper hedge over time than the VIX.

Oil As a Strategic Long Holding

Here are some reasons (in chart form) for my assertion that the Energy sector in general, and Oil & Gas in particular is still an excellent long-term investment theme for some time to come.

What is more, there are also a couple of short-term drivers to drive oil-related commodity and share prices higher to boot...

1. Seasonal Effect - US Gasoline Prices Break Out For Summer (Driving Season)

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Source: St. Louis Fed, Bloomberg

Energy: The Long-Term View

2. Long-Term Oil Driver: Consumption Growth from China, India etc.

(click to enlarge)

Source: US Energy Information Administration

3. So Far, Non-OPEC (North America) Production Growth Has Kept Up

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Source: US Energy Information Administration

4. But Will Be Tough to Keep Up With Demand...

Source: US Energy Information Administration

Energy: Short-Term Risks

5. Civil War Has Decimated Production in Libya, Syria, Terrorism Hurting Nigeria too

(click to enlarge)

6. Iraq, Already OPEC's 2nd-Largest Producer at 3.3 Million Barrels/Day, Is Forecast Huge Production Growth

Source: oilprice.com

7. With ISIS Advances, Iraqi Civilian Deaths Now Highest Since 2007

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Source: iraqbodycount.org

8. OPEC Oil Production Disruptions Are Now At Their Highest in 4 Years

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Investment Conclusions

9. Buy US Integrated Oil, Oil Services, MLP Stocks on Weakness

(JPMorgan MLP ETF: US code AMJ, other similar MLP ETFs AMLP, MLPX; iShares Oil Equipment & Services ETF IEZ, other similar ETFs OIH, XES; iShares Oil Exploration & Production ETF XOP)

(click to enlarge)

Source: Bloomberg

10. Buy US Oil, LNG Shipping On US Export Growth

(Guggenheim Shipping ETF SEA; Teekay Corp. TK)

(click to enlarge)

Source: Bloomberg

11. PowerShares DB Commodity Index ETF (NYSEARCA:DBC) Cheaper Hedge Than VIX

(click to enlarge)

Summary

  1. The oil sector remains a key long-term investment theme for me
  2. World energy demand is set to continue to grow fast
  3. World oil & gas production growth may struggle to keep up; suggesting a solid backdrop also for renewable and nuclear energy
  4. Short-term: Geopolitical risks to OPEC oil production (principally Iraq)
  5. US, European oil stocks to continue to outperform - Shale oil & gas exploration & production (e.g. the FRAK ETF), oil services and MLPs
  6. The PowerShares DB Commodity Index ETF one way to play higher Brent crude oil, gasoline prices, while hedging against oil-related risk-off market moves. Certainly cheaper to hold than implied volatility ETFs like VXXand VXZ.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

Source: Buy Into Black Gold, Now And For The Long Term!