Fuel Up Your Portfolio with Oil

09/09/2013 6:00 am EST

Focus: COMMODITIES

John Stephenson

President and CEO, Stephenson & Company

Commodities expert John Stephenson shares his perspective on America's energy boom, his outlook for crude oil, and the stocks that are going to do well in this environment.

SPEAKER 1:  Can oil prices continue to go up?  We’ll ask John Stephenson.  Hi, John, how are you?

JOHN STEPHENSON:  Great Howard.

SPEAKER 1:  Well, as we’re talking now or recording this interview, oil is over $100 a barrel.  We’ve had gasoline prices move up quite a bit.  As we’re talking now, Egypt is in flames.  There’s a horrible situation there although no distribution in the Suez Canal and that may be part of what’s behind some of this.  What do you see?  What is your outlook for oil prices and energy in general over the next few months to a year.

JOHN STEPHENSON:  Well, I’m very constructive on oil longer term over the next five years.  I think the realistic trading range is between $90 and $105, $110 for oil so it’s fairly consistent with where we are right now.  I think the reason for it is it really comes down to what’s happening on the ground.  What’s happening on the ground is there is a lot of talk of the revolution in shale with North Dakota, etc. but what we’re producing currently in North Dakota still isn’t enough, certainly not enough to handle our needs.  We’re still net end importer of energy and I think that will continue for some time.  The reality is even though we’ve had tremendous success to scale it to what we need and replace our imports, which is roughly eight million barrels a day, it’s going to take a mass effort.  It’s going to take really an eight-fold increase in what we’re currently producing. 

SPEAKER 1:  Eight-fold increase, interesting. 

JOHN STEPHENSON:  Well, we’re producing just a little less than a million barrels a day currently so it’s going to take that much of an increase just to break even.

SPEAKER 1:  So, let me jump in here.  Are you saying that some of this talk about American energy independence is a bit of hype?

JOHN STEPHENSON:  Oh, it’s total hype.  Yeah, I think there’re great things that have happened in energy.  Certainly, it’s been one of the best job creators.  It’s certainly one area where America leads in terms of technological innovation.

SPEAKER 1:  If you look at North America and include Canada that’s…

JOHN STEPHENSON:  Then you throw in Canada too, things are happening there as well.  I think really within the whole concept of North American independence, I think you certainly are independent if you include Canada and the development of the oil sands but if you just take it strictly with the U.S. in mind, you really are going to struggle to get there.  Furthermore, all the oil that is in scale rock around the world, that revolution is a long time in coming.  I really see this being a tight market for some time.  I think the other thing is we are very reliant on the super majors.  The super majors themselves have very little oil in terms of their reserves on the books.

SPEAKER 1:  They recently reported on their last quarterly reports were disappointing.  They really had pretty poor results.

JOHN STEPHENSON:  Very disappointing and I think what people forget is companies like Shell and Exxon for example, 50% plus of what they produce is natural gas.  Now it’s booked on the reserves as a heat equivalent, not a financial equivalent.  Six thousands BTUs of gas is the same as one barrel of oil but gas is trading for $3 and change and oil is $100 plus.  They’re not a six-to-one ratio.  That ratio is more like a 35 to one. 

SPEAKER 1:  How should investors be playing this?

JOHN STEPHENSON:  I think you want to focus on companies that do have good growth in oil.  I think that’s the first key to keep in mind.  Keep in mind that I think that companies that are showing growth are also very promising in this environment where people are looking for growth right now in their portfolios.  I personally think Devon is a great name.

SPEAKER 1:  What’s the ticker on that?

JOHN STEPHENSON:  DVN.  It has properties both sides of the boarder.  It’s one of the faster growing ones.  Like all companies, they’re concentrating on their oil assets.  Chevron’s had some pretty good success. 

SPEAKER 1:  That’s CHV or CVX, sorry. 

JOHN STEPHENSON:  CVX and ConocoPhillips, COP, those are names that I think will do well going forward.  I think Suncor is very attractive right now.  That’s intra-listed.  It’s a Canadian oil sands producer.  The ticker is SU.  These will go higher.  Of course, you’ve got the issues related to today’s market with the Suez Canal and Egypt in crisis.

SPEAKER 1:  Okay, so can I ask you, do you own any of those stocks personally or professionally?

JOHN STEPHENSON:  I own them all personally and professionally we own them as well because we believe longer term this is a good story.  I think energy gets better over time because it’s been overlooked.  It’s been thrown out with the commodity trade, which has been, as you know, very weak. 

SPEAKER 1:  Thank you.

JOHN STEPHENSON:  You’re welcome.

SPEAKER 1:  We’ve been speaking with John Stephenson on the MoneyShow.com Video Network. 

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