Staying Extremely Bullish About Oil

by: Insider Monkey

In a monthly oil report released this month, OPEC has forecast world oil demand to grow by 1m bbl/day to 86.4m bbl/day in 2011. The report further said that the demand growth would be fuelled by non-OCED countries like China, India, Latin America and the Middle East.

"On the product side, demand for industrial fuels will be strong as a result of the ongoing economic recovery. Demand for transportation fuels is also forecast to increase," it added.

The world's oil demand growth this month has been kept at 900,000 bbl/day, the same as last month. OPEC predicts that OECD region will not see any growth this year, mainly due to declining demand in Europe. In 2011, non-OPEC oil supply is expected to grow by 300,000 bbl/day.

"Brazil, Canada, Azerbaijan, Colombia, and Kazakhstan are forecast to be the main contributors, while Mexico, U.K., and Norway are foreseen to experience the largest declines," OPEC said. Thus the demand for OPEC crude this year has been pegged at 28.7m bbl/day, which is about 100,000 bbl/day lower than the previous month's estimates. The estimate is also 300,000 bbl/day less than last year’s estimate.

Wharton finance professor Jeremy Siegel says the key to the current market correction is oil. Dependence on oil has been a serious problem for decades. Siegel talked to Bloomberg about the impact of oil prices on U.S. stocks and the outlook for equities and Federal Reserve policy. ''We import twelve million barrels in a day and we are hostage to the oil,'' he said.

Siegel says the stock bull run has some distance to go and he thinks there won’t be any major disruptions in oil. ''It is an opportunity for investors to get in,'' he said.

Siegel also talked about the effects of higher gasoline prices on retailers. ''Everyone talks about it and it is a factor that effects consumers, but I was recently in Europe and in Germany. Everthing is booming and they pay eight to nine dollars and they seem to survive',' he said.

Siegel is bullish about the stock market and oil-producing economies. One way of playing his thesis is to invest in oil-rich country ETFs. Here is a list of these ETFs and their expense ratios:

  • iShares MSCI Canada (NYSEARCA:EWC), 0.53%
  • Market Vectors Russia ETF (NYSEARCA:RSX), 0.69%
  • Market Vectors Gulf States ETF (NYSEARCA:MES), 0.98%
  • WisdomTree Middle East Dividend (NASDAQ:GULF), 0.88%
  • PowerShares MENA Frontier Countries (NASDAQ:PMNA), 0.70%
  • Market Vectors Africa (NYSEARCA:AFK), 0.83%
  • iShares MSCI Brazil (NYSEARCA:EWZ), 0.61%
  • Global X Colombia 20 ETF (NYSEARCA:GXG), 0.86%

Another way of playing this is buying individual energy companies. Legendary investors George Soros and Jim Rogers are among the several hedge fund managers who are bullish about commodities. T. Boone Pickens has been investing in energy stocks. John Burbank’s Passport Capital is extremely bullish about energy shares; Burbank’s favorite energy companies are Transocean (NYSE:RIG), Sandridge Energy (NYSE:SD), and Suncor Energy (NYSE:SU).

Pickens also has SD and SU in his portfolio. Pickens’ favorite energy stocks are Chesapeake (NYSE:CHK), BP Plc (NYSE:BP), Plains Exploration (NYSE:PXP), QEP Resources (NYSE:QEP), and National Oilwell Varco (NYSE:NOV). SAC’s Steven Cohen also likes Plains Exploration. Cohen is also extremely bullish about Williams Companies (NYSE:WMB). One of the top equity hedge fund managers in 2010, Daniel Loeb, also has WMB in his portfolio. He also prefers CVR Energy (NYSE:CVI) and Abraxas Petroleum (NASDAQ:AXAS).

Finally, Soros initiated a large position in Petroleo Brasileiro (NYSE:PBR). He also has Plains Exploration (which is a favorite energy stock among prominent hedge fund managers) and Interoil Corp (NYSE:IOC) in his portfolio.

Disclosure: I am long CHK.