Why am I bullish on energy investments? Here are several reasons.
Oil is presently above $67 per barrel. One might ask why this is so. In the early '70s oil was around $2 per barrel. Of course the price of a barrel of oil hasn't actually gone up but rather the purchasing power of the US dollar has gone down. Consequently, OPEC simply wants to maintain a fair relative value for a barrel of oil which, as an asset, has remained constant in terms of its utility.
There's also a certain fear factor component that no doubt is added to the price of oil because of the political climate that exists today. This contributes to the price of a barrel of oil in the form of a premium.
Additionally, the demand for oil (and other commodities) is increasing because China is experiencing its own industrial revolution just as the US did 100 years ago. India also contributes to the demand for the same reason.
There's concern about the future availability of oil due to the theory of "Peak Oil". This theory implies that the global supply of oil has peaked and has been or will be reached soon and future supply of oil will be more expensive to extract as the quantity of it declines. A concern for the supply of oil in the ground and the ability of OPEC to deliver it is beginning to be questioned by experts in the industry.
The bottom line is that there is a great deal of uncertainty about the single most important product in the world and the subsequent availability of it. Is the fact that action in the Middle East is the largest component of the news these days just a coincidence?
Given all of the uncertainty and the declining purchasing power of the dollar, companies involved in the energy industry stand to make substantial gains in their share price. One can invest in individual companies or they can buy into mutual funds that offer diversification across the energy market.
Personally, I'm inclined to leave the analysis of individual companies up to the guy at the mutual fund company whose job is to be an expert on the domain.
Below are two mutual funds from Fidelity that specialize in energy. By way of disclaimer, I have holdings in both of them. Visit their website and scroll down to the respective funds, check out their performance, and you'll see why.
Fidelity Energy (FSENX
Fidelity Energy Service (FSESX)
Read about these funds and decide for yourself if they're right for you.
