Energy sector specialist Elliott Gue of Energy & Income Advisor discusses the outlook for oil and highlights three of his favorite stocks for low-risk, medium-risk, and high-risk investors.
Steven Halpern: We're here today with Elliott Gue, editor of Energy and Income Advisor. How are you, Elliott?
Elliott Gue: Good. Thanks for having me on.
Steven Halpern: Well, you've been following the energy sector for 15 years or so, so you've been doing this a long time, but the Energy and Income Advisor is a new project. Can you tell our listeners a little bit it?
Elliott Gue: Absolutely. We started the Energy and Income Advisor in October of 2012, so it is a relatively new advisory. Our coverage universe in the newsletter is actually very broad.
We cover pretty much every aspect of energy out there, everything from Master Limited Partnerships which are a high income-producing group and a tax-advantaged group, to your traditional energy firms, like Exxon Mobile (XOM) and Chevron (CVX), as well as some of the smaller independent producers, and of course oil services firms like Schlumberger (SLB) and Weatherford (WFT), and of course, all sorts of transportation firms, tanker stocks, etc.
So we really have a very broad coverage universe touching on pretty much every aspect of the global energy markets, and it's really the culmination of a number of coverage universes that I used to, that I've been covering for a number of years in a variety of different public publications.
So I really, when I created Energy and Income Advisor, my focus was to give investors everything energy all in one place, and so we cover both growth stocks, as well as of course, what's been very popular over the last few years, which is income-orientated stocks like the Master Limited Partnerships and Trusts.
Steven Halpern: In the past couple of days we've seen oil spike up over the $105 level. I was wondering if you could give us your outlook for oil and possibly explain how rise in oil prices impact the stocks that you're looking at.
Elliott Gue: Sure. Well, oil prices have spiked up a little bit recently, and I think a lot of that has to do with some concerns about the geopolitical environment.
Of course, Egypt is in the headlines again with the democratically elected government there being basically deposed by the Army, and there are some concerns of sort of a re-kindling of the Arab spring that affected the oil markets just a few years ago, so I think that's some of the reason that you're seeing a little bit of a spike-up in oil prices in the near term.
I certainly don't think it's particularly supportable by basic oil fundamentals. Right now, you really have to look at the oil market in terms of two types of oil.
First of all, you have US oil, which would be best summarized by the performance of the West Texas Intermediate or WTI crude oil blend, and then you have international oil prices, which I think are best summarized by the Brent crude oil blend, and what we've seen over the last couple of years is that generally speaking, US oil prices, WTI, has been trading at a pretty large discount to Brent.
In fact, at one point late last year it was trading at about $30, or more than $30 a barrel discount to present. The reason for that, of course, is strong growth in US shale production. That would be plays like the Bakken Shale in North Dakota, part of the Eagle Ford Shale in southern Texas, and even part of some of the other shale places like the Utica Shale in Ohio.
So we've seen strong growth in production from shale plays, and that means that US imports of oil or US demand for imports are falling for the first time since the early 1970s because US oil production is rising for the first time since the early 1970s. So that's kind of kept a damper on US oil prices.
Outside the United States, it's been a very different picture. What we've seen is non-OPEC production growth very, very limited. We've seen a lot of project delays. We've seen a lot of projects not live up to expectations, so non-OPEC production outside North America, US, and Canada has been very, very weak.