OPEC is calling for stable oil prices. Domestic supplies are at 1975 levels. Cash, funneled into the integrated oil giants, has transformed their formerly debt-laden operations into cash-rich enterprises. There is no shortage of demand on the horizon. So, where are the best values?
Our search need not lead to Royal Dutch/Shell, represented by two trading stocks, Royal Dutch
Canada's Imperial Oil
If you like to invest where Warren Buffett's Berkshire Hathaway
Now that ChevronTexaco
Before concluding that oil prices will eventually fall and that today's low price-earnings ratios are a reflection of that, consider this: The oil business requires gigantic capital commitments. Today's high oil and natural gas prices are funneling capital into these companies even as they are making large LNG investments and searching for oil in expensive deep sea locations.
If oil prices drop back to $20 a barrel soon, many of the best oil companies will have the strongest balance sheets (based on debt to capital and other financial measures) that they have had in years.
And remember, it was only the beginning of this year that publications such as Time magazine cautioned that by summer we'd see a glut of oil and $20 a barrel. It didn't happen. Demand for oil is strong -- and will get stronger with an economic recovery. Furthermore, it is unclear when Iraqi oil will flow freely again.
That's a lot of factors to consider. Rather than try to time the oil market, investors should consider the value that is building on the best oil company's balance sheets -- and then find the best bet for their investment dollar.
W.D. Crotty owns stock in ChevronTexaco and Berkshire Hathaway. You can e-mail W.D. at email@example.com or join him on The Motley Fool's Oil & Gas discussion board. For a 30-day free trial to the discussion boards, click here.