Gas, crude, heating oil -- don't let the different terms fool you. And please, don't get caught up in the hourly alerts on CNBC about inventory data, supplies, and price spikes.
The fact is that the energy sector is hot; it's been hot the entire year, and it's as likely as tomorrow's sunrise to get hotter next year (OK, maybe not that likely). Natural gas futures just climbed to their highest level ever recorded, crude tapped five-week highs, Old Man pre-Winter has been clobbering the Midwest, and China continues to burn more oil than an '85 Chevy.
So, take one of the stories circulating on Wall Street that energy simply can't move any higher with a grain of salt. Goldman Sachs recently challenged this view by labeling the current trend in rising energy costs as a "super-spike price phase." Even ConocoPhillips'
The whole energy story really boils down to a very basic Economics 101 equation: More demand plus less supply equals higher prices. The International Energy Agency recently upped its expectations for 2006 global oil product demand by 130,000 barrels a day to 1.79 million. Looking ahead even further, 2007 to 2010 shows that globally we are expected to burn some 1.8 million to 2 million barrels of oil a day.
Meanwhile, geologists say that 90% of all the oil in the world has already been tapped into, and 80% of existing oil fields are in the process of depleting.
OK, enough doom and gloom. One of the brightest energy plays right now is Statoil
Statoil might be an attractive opportunity at the current valuation. Its American depositary receipts trade for just under $24 per share, and the company sports a price-to-earnings ratio of 10.87. The P/E is in line with the industry average of 10.3, but Statoil's five-year annual growth rate of 18.9% is very strong compared with its competitors.
For the wise investor, this stock may be a way to make higher energy costs work for you instead of the other way around.
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Fool contributor Karen Riccio is a Southern California-based freelance financial writer with access to some of the best burritos north of the Mexican border. She doesn't own shares in any of the companies mentioned in the article. She welcomes your emails.