The Economy Forecast Agency (EFA) specializes in long-range forecasts for key global commodities, including oil, gold, silver and natural gas. The Agency uses a combination of historical data and statistical and mathematical algorithms to forecast prices up to 5-years in the future. And the mood is bullish on oil – EXTREMELY bullish, closing 2018 at $92+ a barrel, with a $111.50 target for 2019 close, and reaching as high as $152 by Dec 2020.
Other analysts seem to agree with the bullish sentiment on oil, albeit not to the extent that EFA has predicted. Nonetheless, notable assessments from the likes of J.P Morgan, Merrill Lynch and Goldman Sachs have 2018 Brent prices hovering anywhere between $60 and $70. As we write this piece, Brent is trading at $77.77 a barrel.
Bullish Oil Investment Outlook
The Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC (primarily Russia) cartel has thus far succeeded in artificially propping-up oil prices by tightening supply. Impending oil trade-related sanctions on Iran (specifically its European and Asian trading partners), by the US, could further dislocate 1 million bpd of Iranian crude by the end of 2018. Further, geo-political tensions in Libya, Iraq, Syria and Venezuela are fueling doubts that supplies from those regions will fill the Iranian void.
This means demand will outstrip supply – even if US shale producers up their production. And that bodes well for long-term oil prices. And as the price of the commodity goes, so does outlook for the sector it represents. Higher oil prices will mean greater revenue for oil companies – explorers, drillers, refiners and service providers.
If you would like to give your investments some exposure to a potential growth area, then it’s time to add some oil to your portfolio.
To add oil exposure to your portfolios, we recommend you stick to the heavyweights in the sector, and further diversify your holdings by geography. By that, we mean buy heavyweights representing Europe and the US. In doing so, you’ll also add global diversification to your investments, because both European and US oil companies we are highlighting are global players beyond the regions where they are headquartered.
Our Euro-based picks include:
- BP plc ADR (NYSE: BP), and
- Royal Dutch Shell plc (ADR) ADR Class A (NYSE: RDS.A)
while US-based favorites include:
- Exxon Mobil Corporation (NYSE: XOM), and
- Chevron Corporation (NYSE: CVX)
The idea in recommending the biggest and best-in-class for your oil exposure is simple: Should anything go wrong with our investment thesis, the Big Guys will more likely be able to withstand the impact of an erroneous prediction.
Including XOM (more on that pick in a bit!), our picks have yielded an average of 18.65% price appreciation over the past 1-year – and that was when oil prices were much lower than they are today (or forecast to be in the coming months). It’s safe to assume that much higher prices will result in much better price-performance of these investments.
The inclusion of XOM is meant as a hedge on oil prices. Because of its combination of downstream and upstream assets, XOM tends to do better (versus the other three picks) in a falling price environment. So, adding it to the mix does provide just a little cushion if the gurus are wrong in their price predictions.
The ETF Approach
So, you still don’t have the stomach to be a stock picker? Afraid of holding just a handful of companies in your portfolio, and wish to diversify further? Well, our next pick does just that.
The Energy Select Sector SPDR ETF (NYSEARCA: XLE) is an ETF that offers you instant diversification by giving you ownership of over 30 global names in the Oil, Gas & Consumable Fuels, and the Energy Equipment & Services sectors – amongst others – including some of the individual names we’ve discussed earlier.
Over the past 1-year, XLE has delivered an impressive 13.53% price appreciation to its investors. At a low MER of 0.13%, and an attractive Price/Book Ratio of just 1.80, you’ll own an investment that projects a 3 to 5-year EPS growth rate of nearly 21%. The best part of owning XLE is that you get paid to wait – a reasonable dividend yield of approximately 3%.
Author does not have investment in stock discussed in this article. Sign-up for our newsletter so you don’t miss any hot investment opportunities. Also download our recently published Best Blockchain Stock To Invest In Right Now or Volatility Survival Guide report absolutely free.