The Last Bargains Left in the Oil Sector

Oil futures hit a two-and-a-half-year high Friday, with the price of crude topping $112 per barrel. Despite what you may have heard about peak oil theory, there is no shortage of crude oil in the world. OPEC stressed that they would boost crude production to make up for any shortfalls, which is good news. The bad news is that Goldman Sachs (NYSE: GS ) warned that OPEC’s spare capacity likely dropped below 2 million barrels per day, which is not very reassuring when Libya was producing approximately 1.6 million barrels per day before the country’s civil war broke out. We’ll have to watch this situation play out to know who is right, but what you really need to focus on in this situation are neighboring Middle East nations, because the next potential dominos in the chain are Bahrain and Saudi Arabia. Saudi Arabia is the world’s largest oil producer, and disruptions to oil productions there would be significant to global output and would put firm upward pressure on oil prices. While it’s too early to know if this will happen, it does appear that we are in an environment that will support higher oil prices in the near to medium term. And the best way for investors to capitalize on this trend is with three oil ETFs and one top crude stock pick. Marathon Oil Stock Going the Distance What is keeping us from increasing our exposure to the sector is that there aren’t a lot of good oil companies to buy. Between low natural gas prices and idle drilling rigs, many U.S. oil companies are not as profitable as you might believe. The real profits right now are being made in the refinery business, where the spread between heavy and light crude allows refiners like Marathon Oil (NYSE: MRO ) to make bigger profits. The Texas-based company explores for, produces and distributes oil and gas products throughout several countries, including the United States, Canada, Norway and Libya. In 2009, Marathon reported reserves of 1.7 billion barrels of oil equivalent, including 600 million barrels of synthetic oil from oil sands. The company’s Marathon Petroleum subsidiary operates seven refineries with a total capacity of 1.2 million barrels of crude oil per day. Marathon Petroleum supplies about 4,600 Marathon gas stations, as well as 1,600 Speedway SuperAmerica gas stations in the United States. Its international exposure and strong U.S. network are what make this the perfect play right now.
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