May Not Be Too Late To Profit From Energy Stocks

Mark Arbeter, S&P’s chief technical strategist, said that “crude oil prices have paused after running up near the Katrina highs of $70 a barrel. We believe that oil prices will find strong support in the $62 to $64 zone, and are setting up for another run at all-time highs. A close above the $70 level would be very bullish technically and would set-up a run to the $80 area, in our opinion. The S&P Energy Index recently hit another all-time high. After some consolidation, we think additional gains are likely.”

The best performing sub-industry of the S&P 500 Energy sector year-to-date is Oil and Gas Equipment and Services, which has risen 19% vs. a 9% gain for the broader sector. S&P senior equity industry analyst Stewart Glickman remains positive on the group based on “continued high levels of capital spending by oil and gas producers, which should bolster demand for services, including production optimization and other technologically advanced services.”

Glickman adds that over the longer term, “we expect demand for drilling services to increase. In the U.S., we believe high field depletion rates and increasing demand for natural gas will continue to support healthy drilling activity. Overseas, we expect higher spending by major oil companies, as well as state-owned oil companies, to be the main growth driver for drilling, as they continue to search for low-cost drilling opportunities, mainly in new regions around the world, with greater emphasis on the deepwater.”

One way to play energy is the S&P Select Sector Energy SPDR (XLE), an exchange-traded fund (ETF) which primarily invests in companies engaged in the development and production of crude oil and natural gas, as well as drilling and other energy-related services. As of Dec. 31, 2005, the ETF comprised 29 companies, including Exxon Mobil (XOM), Chevron Corp. (CVX) and ConocoPhillips (COP). For the one-year period through Jan. 31, 2006, this ETF gained 55.17%, versus a 10.38% return for the S&P 500 Index. Over the three-year period, the ETF climbed 40.63% (annualized), compared with a 16.40% rise for the Index.InvestmentAdvisor.com has more mutual fund news from Standard & Poor’s available here.