Global Trader: The New Oil Economies

With Russian oil companies now going underground to sell their barrels, the global energy landscape seems to be shifting for the foreseeable future . . . creating opportunities for U.S. investors who keep their eyes open.

First, Russia remains off the menu. You couldn’t buy that apocalyptic dip now even if you tried.

But while Russian oil weighed in at 10% of global exports before the spigot shut, you were never able to trade those oil and gas companies anyway unless you were extremely diligent in chasing over-the-counter shares.

That slice of the energy sector was off limits then and the situation hasn’t changed. At best, Russian oil only complicates the competitive calculations for the stocks we can actually trade.

And while oil is ultimately the linchpin of the Russian consumer economy, there are other oil-based economies that are a lot more open to U.S. investors.

Saudi Arabia, Kuwait and Iraq don’t count here. Even though they collectively produce 2.5 times as many barrels of crude as their Russian counterparts, not a single company from any of those countries is currently listed on Wall Street.

With a lot of foreign countries, there’s at least one stock that serves as a proxy for the consumer economy . . . usually a bank or a telecom carrier. That’s just not the case here. There are no easy ways for U.S. investors to get direct exposure to their companies without an overseas brokerage account.

At least there are ETFs for Saudi Arabia and Kuwait, as well as fellow bulge bracket oil producer Nigeria, which do all the work of buying local shares for you. They’ve all done fairly well this year and will probably outperform as long as their people get at least a trickle of their resurgent petrochemical wealth.

After all, none of these funds overweight local energy companies. Most of their holdings are those banks and telecom carriers, the stocks that reflect the way oil wealth circulates into the consumer economy.

For real direct exposure to the companies that can step up to fill the void Russia leaves in the global energy market, you need to start looking closer to home.

I’m a fan of Norway’s Equinox (EQNR) in this environment because its North Sea operations are close to Europe’s desperate refineries and power plants. Production isn’t enough to take over from Russia, but it helps to close the gap.

The downside is that the other Norwegian stocks that trade on Wall Street aren’t really focused on the domestic economy, so you need to go straight to the North Sea source for exposure.

That’s all right. We’re just looking for oil, which makes EQNR a perfect fit.

Mexico remains perpetually underrated as an oil exporter despite decades of drifting around the fringes of OPEC. U.S. refineries absorb more than half of the country’s excess production.

Although the leading national producer Pemex is government owned, you can still trade would-be regional heavyweight Vista Oil & Gas (VIST) and get access to its portfolio of projects across Latin America.

Pemex, much like its counterpart Petrobras (PBR) in Brazil, runs more like a utility than a commercial enterprise. It’s inefficient and bloated. VIST is a completely different animal.

The stock is up 47% YTD and I still like it even after that run. Management is ambitious and highly motivated to exploit fields in places like Argentina that have been neglected for decades.

And then there’s Canada. Yes, two of the biggest oil exporters on the planet are on either side of the United States. If energy prices stay elevated long, our neighbors will be the ones who benefit first from any Washington effort to provide relief.

Start a Canadian energy portfolio with pipeline operator Enbridge (ENB), which pays a 6% yield right now. Lock it in.

Canadian National Resources (CNQ) and Suncor (SU) are a little more speculative because they produce oil from sand. It’s an expensive process but it’s gotten a lot more efficient in recent years.

CNQ claims it breaks even at around $30 per barrel. Here above $100, they’ve got a license to print money. SU is in a similarly good place in the cycle right now.

Buy either stock whenever you can lock in a yield above 4% or so, letting those dividends light up your portfolio while you wait for longer-term bets to pay off.

One of those bets is right here at home. I’m talking about Cheniere (LNG), which is the leading U.S. gas exporter.

We won’t let Europe freeze. And we have too much gas. LNG is how we bridge the ocean and solve both problems.

It’s in the early stages but I like our odds here.

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