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High Oil Prices

Brian Hicks

Written By Brian Hicks

Posted May 12, 2009

At about this time in February, oil had just bounced off the $42 per barrel mark. Traders haven’t turned back to that level since, and we’ve soared now by nearly 50% since the winter’s low to the $60 threshold.

Whether we get support at $60 remains to be seen, of course.

But it’s worth analyzing which sectors have performed best throughout this rally, and we can do that by analyzing some top ETFs that tend to rise and fall with oil prices.

  • United States Oil Fund (NYSE:USO)
  • Market Vectors Global Alternative Energy Index (NYSE:GEX)
  • Oil Services HOLDRs (NYSE:OIH)

energy etf charts

First, the United States Oil Fund (NYSE:USO), a pretty unambiguously named ETF meant to track the movement of NYMEX crude. USO has gained plenty of value per share, but not by the nearly 43% light sweet crude has accrued. 

USO lagged the uptrend in oil prices by almost a few weeks, and we can see in the chart above that all three of the ETFs we see that it took a while for the February dip to wear off.

Since then, though, it hasn’t been USO that set the pace… Instead, the Oil Services HOLDRs, which contains shares of international petroleum infrastructure maintenance providers like Schlumberger (NYSE:SLB), has gained the most. Of course, it’s a photo finish here, but the potential for investors who want to ride an oil price wave from a different angle is clear and strong with OIH.

Finally, the Market Vectors Global Alternative Energy ETF has lagged both of these fossil-fuel plays. My colleague Nick Hodge at Green Chip International and I have both just come from global renewable energy finance forums, where we’ve heard the problems and progress in renewables throughout the credit crunch and the early Obama administration.

Funding access tightened for tons of international companies over the past couple years, doing in many clean energy start-up firms and even some entire sectors (corn ethanol perhaps the greatest dud of all). But what Nick and I hear is that the shake-out has been healthy overall, and government banks for development like Brazil’s BNDES are stepping in to bridge financing gaps for worthy debtors.

GEX has suffered both from tight capital constraints that would finance future earnings and thus drive share price growth, and also from general investor wariness when it comes to emerging market investments.

As we’ve seen with gold, the dollar, and other "safe-harbor" instruments, the appetite for international adventure slowed greatly.

Right now, credit conditions are better than many investors know, when it comes to renewables, and GEX is undervalued as a result. Governments are plowing billions in infrastructure spending into clean energy programs that give private companies business while increasing R&D for research continuity the industry needs.

GEX may be the laggard on the chart, but it’s the leader going forward.

Sam Hopkins

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