Monday, December 15, 2008

A Long Term Opportunity

Just before the Dec. 17th OPEC meeting, oil sits at $50 a barrel. While the price of oil has fallen 66% from it's summer high of $150 a barrel, those who believe the T. Boone Pickens of the world see opportunity in energy at today's prices. There are few reasons to believe that there are many significant oil discoveries left and that the shift to alternative energy sources will not be quick enough or substantial enough to meet demand. As emerging superpowers like India and China grow, they will use a larger piece of the Earth's energy. Those who control it will prosper; those who do not will suffer.

So what can be done as an investor? Buying an index of oil exploration, production and servicing companies in an Exchange Traded Fund (ETF) like the Rydex Equal Weight Energy Fund (RYE) is a good place to start. RYE holds an fairly equal weight in 40 companies that would benefit from higher oil prices. Or the more research driven investor could research and buy individual companies, like Petrobras (PBR) or CNOOC (CEO). These giants are the state oil companies of Brazil and China and control substantial reserves. Do your own research and weigh the risks carefully. Though investing in energy and it's future scarcity is likely to be a safe bet.