Oil plays have lagged the rest of the resource boom, but now that OPEC is guiding investors to get used to the idea of crude at $90 a barrel, energy prices could join the party.
The fact is that strong demand for oil from emerging markets like China is coming at exactly the moment when global supply is slipping. Non-OPEC oil production is on track to shrink a total of 2.2 million barrels a day over the next five years, while rising OPEC output will not be able to cover the shortfall even if Iraq gets on line faster than expected.
As a result, even if global demand edges up only a little, the slack available to keep the oil industry humming through outages — weather, labor disputes or geopolitical events. By 2012, spare capacity may be as narrow as what we saw during the oil crisis of 2007-8, and from there, things get even tighter.
Although there is plenty of gas out there, increased consumption of gasoline and other liquid fuels should keep the demand factor for petroleum high. The question is whether a slight upturn in oil prices — possibly $100 to $105 a barrel in the next few years — translates into a brake on economic activity.
In this kind of environment, Russian oil companies are probably the best way to get exposure to the commodity price. They have massive reserves and are currently boosting production to record levels. Rosneft would be an obvious name to play here, but the ADR is extremely thinly traded.
And naturally, all this activity is going to be great business for the field service group.
Finally, to play oil itself, the crude ETF USO has been hot:
Disclosure: no position