zestinvest

It’s hard to own oil. Most of the ETFs that present themselves as vehicles for owning oil do a poor job of it. They own futures, rather than physical oil. Most of the major oil companies are a mixture of oil, natural gas, and refining operations. For example, Exxon-Mobile now only gets 60% of its value from oil production.

Tickers of major companies with a high percentage of their value from oil production: PBR, CVX, SU, CNQ, OXY, PWE, IMO, CEO. All of these get around 75% or more of their current value from oil production. (The rest is from natural gas or refining.) Source: http://www.mcdep.com/

The four major ETFs for oil invest in futures contracts: USO, OIL, DBO, and USL. The first two have underperformed the WTI spot price index horribly, while the latter two have underperformed slightly. DBO has a longer track record than USL. You can compare the performance of stocks and ETFs to the price of West Texas oil at Bloomberg:
http://www.bloomberg.com/apps/quote?ticker=USCRWTIC:IND

BNO is an ETF that tracks Brent oil–most of the oil sold in Europe rather then the US.

Why care more about oil? It is unique. Natural gas, coal, solar, hydro, wind, nuclear are ways to contribute energy to infrastructure. Mostly, they go into the electric grid, or sometimes directly to industry use. They compete with each other, and so each is less unique. Oil has little competition. There are no hybrid Boeing 747’s. The majority of the planet living on little income is not considering a Prius Chevrolet Volt for its next purchase. Biofuel is growing, but small, and potentially limited because it competes with food production. Oil is more needed, and thus more potentially profitable.

Alternative energy is getting none of the boost that it has previously gotten from high oil prices. The reasoning has always been that high oil prices incentivizes investment in alternatives. It makes them cost competetive, and it makes the public conscious of the need to develop a diversity of sources. Yet, this graph suggests the reasoning is not present in the markets at the moment. The red and blue lines represent the price of oil (USL) and the iShares energy ETF; the green and pink lines are solar (TAN) and wind (FAN) ETFs, respectively:

One likely expalanation is that wind and solar are primarily candidates for power generation, and as such compete with coal, natural gas, and nuclear. Oil, since it’s portable, is a transportation fuel.

These countries have cheap stock markets (i.e. low average PE ratio) and plentiful natural resources:

• Russia (RBL, RSX, CEE)
• Brazil (EWZ, LAQ)
• Australia (EWA, KROO)

CEE and LAQ are closed-end funds (CEF) that invest in Eastern Europe and Latin America, with high concentrations in Russia and Brazil. However, neither CEF is trading at a juicy discount at the moment. KROO has a higher weighting in natural resource companies than EWA; the latter is overweighted in banks, bad because Australia’s housing market looks bubbly.

Fund managers like Russia and Brazil:

According to the latest UBS survey of top fund managers, 48% say Brazil will deliver the best performance in Latin America, Europe, the Middle East or Africa next year — but 33% are going with the emerging consensus and saying they think Russia will win the prize.

http://www.emergingmoney.com/markets/guess-the-top-managers-favorite-markets/

However, OPEC seems to be of the opinion that the current $90 oil price is overpriced, and the fair-value range is $70-$80. See the Bloomberg story: OPEC Dismisses $90 Oil Price as ‘Blip,’ Maintains Output Quotas

Source for international PE ratios is the Financial Times. Peru and Canada are resource-based economies that look overpriced.

Disclosure: I own EWZ.