Three Ways to Play Energy’s Rebound
02/12/2009 12:19 pm EST
Curtis Hesler, editor of Professional Timing Service and a long-time energy bull, says supply is dropping faster than demand and that’s likely to push energy prices higher.
We appear to be close to a new bull move in energy. Energy is going to start moving higher; and once it joins gold on the up side, the rest of the commodity complex will follow suit.
Rising commodity prices during a severe recession is not bullish for stocks or financial-based assets. It translates to higher costs, lower sales, and red ink at the bottom of the ledger. With the money supply due to increase 50% or more by the end of 2010, you can’t say you don’t see it coming.
Crude oil production declines will be faster than the decline in demand this year, and the lack of current investment is going to result in a widening gap between demand and supply. Global oil production is falling at an alarming rate, and actual figures are eclipsing estimates. Production at the Cantarell Field in Mexico declined twice as much as expected during 2008, [falling] by 33%! Expect more surprises and higher crude and fuel prices this summer, regardless of the recession.
I still like closed-end fund Blackrock Global Energy and Resources Trust (NYSE: BGR). It has been beaten down from $37 last summer, but the dividend was actually increased in September from 37.5 cents to 40.5 cents per quarter. Companies do not normally declare a dividend that they don’t feel they can maintain, and they certainly don’t tend to increase dividends with temporary intentions either. Buy BGR at $15 or better. (It closed at $17.50 Wednesday—Editor.)
Take a look at Apache (NYSE: APA). They offer several advantages. First, they are perhaps the best company around at squeezing extra oil out of played-out fields. This is a talent that will be more in demand as fields across the globe like Cantarell peak out and begin their slide toward zero production. They also get their oil from relatively friendly areas. There will come a time when our country will desperately need Apache. Accumulate Apache at $70 or less. (It closed below $73 Wednesday—Editor.)
You may already have sensed this at the gas pump, but gasoline prices are starting to rise. I suspect you could see $2.00 fairly soon. The party at the pump is over. This will have a nasty impact on economic circumstances.
Buy the United States Gasoline Fund (UGA-NYSE-$21.53) at $19.10 or less. This is a gasoline ETF and thus not the safest bet on the Street. Nevertheless, this looks like a good speculation on higher gasoline prices if you can buy at $19.10 or lower. (It closed below $24 Wednesday—Editor.) If you take the position, use a protective stop at $16.05. Keep in mind that this is not a conservative recommendation and that the fund is taxed as a commodity.