Is Oil the New Gold?

Is Oil the New Gold?

You've almost certainly watched gold plummet from the vicinity of $1,800 per ounce in October to about $1,240. During the same timeframe, its precious metals compatriot, silver, has been reduced to little more than half the value that it carried last autumn.

Conversely, West Texas Intermediate crude oil is flirting with $100 a barrel, about the top of a year-long range that briefly descended beneath $90 on a couple of occasions. That stability, likely along with our uncertain economy and the chaos that has enveloped much of North Africa and the Middle East, or MENA, has Dan Dicker, a longtime New York Mercantile Exchange crude trader, the author of Oil's Endless Bid, and the president of MercBloc, a wealth management firm, calling oil the new gold.

Dicker believes that crude prices are being propped up, at least somewhat, by refugees from gold's now bygone era. As he says more directly, "With gold rolling over, oil is the only real alternative."

Working its way up
There's also an obvious case to be made for much of oil's strength and stability emanating from concern about the spreading cataclysm that today constitutes the MENA countries. You, of course, know about current events in Egypt, Africa's most populous nation. While production in the country is only slightly in excess of 700,000 barrels per day, a number of integrated and independent companies are endeavoring to raise.

But with the possible exception of Algeria -- itself the victim of a terrorist attack on a natural gas facility early this year -- and with Libya remaining in what I'll term "quiet chaos," the North African producing countries on the Mediterranean Sea are hardly secure. And a jump across the Red Sea into the Middle East hardly leads to a landing amid tranquility.

Spreading chaos
Obviously, Syria, where more than 90,000 have perished in a raging nearly two-year civil war and hundreds have fled across the country's borders to reach Turkey and Jordan, is the most volatile tinderbox in the region. The danger there is that Bashar al-Assad's government's forces are being aided by Iran, to some extent by Iraq -- itself progressively more precarious -- and Russia. Those rebelling against the Assad regime are obtaining varying degrees of help, or promises thereof, from Saudi Arabia, Qatar, several European nations, and the United States.

In addition to Syria and Iraq, however, it's nigh onto impossible to name a country in the Middle East for which careful, concerted monitoring isn't appropriate. And, by my calculation, were a major conflagration to spread across the MENA countries, the amount of affected oil production could approach 25 million barrels daily.

Seeking shelter in oil
Therein, it appears, lies a firm foundation under crude prices for some time to come, making Dicker spot on. Given the interest-rate sensitivity of the major integrated companies, he believes the best way to play the sector involves a foursome of strong independent producers.

He notes that all four of the companies share the important characteristics of a "defensive oil name." Included are valuation that don't significantly factor in yield, along with sizable market capitalizations, and strong recent performances. He points to differences, however, in their geographic operating locations.

Four solid opportunities
His first up is Anadarko Petroleum . Based in The Woodlands, north of Houston, the company is, with a nearly $44 billion market cap, the biggest of the generally comparable group. In addition to operations in almost a dozen major U.S. onshore plays, the company is one of the largest independent deepwater producers in the Gulf of Mexico. Beyond that, it's active in China, Columbia, Ghana, Guyana, Indonesia, New Zealand, Mozambique, Kenya, and west and South Africa.

Apache is a nearly $33 billion (market cap) company that also operates in the U.S. and internationally. Specifically, it has production in the central United States, the Permian Basin of southwest Texas and southeastern New Mexico, and the Gulf Coast onshore. Internationally, it works or has interests in Canada, Western Australia, Argentina, and the North Sea. It's also noteworthy that it works in Egypt's Western Desert, the site of a trio of recently announced discoveries in three separate basins.

Noble Energy is the smallest of the four companies, with an almost $22 billion market cap. Its most significant operations occur in the onshore U.S., the Gulf of Mexico, west Africa, and the eastern Mediterranean (offshore Israel and Cyprus).

Last, but hardly least, EOG Resources sits size wise in second place behind Anadarko, with an approximately $38 billion market cap. This "oily" company is the majordomo in the prolific Eagle Ford shale, and also operates in the Bakken and the Permian Basin plays. Outside the U.S., it's active in Trinidad and Tobago, the United Kingdom, China, and suddenly hot Argentina. Its star quality is indicated by the fact that it sports the highest forward P/E of the foursome.

Foolish takeaway
I can't argue with Dicker's logic when he suggests buying a basket of these companies.Nevertheless, I strongly urge Fools to become familiar with all four.

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Fool contributor David Smith has no position in any stocks mentioned. The Motley Fool owns shares of Apache. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Originally published