The need for oil drilling services will continue even if the price of oil declines, according to Richard Lehmann. Here, in his The ETF Investor, he looks at a favorite way for investors to play this trend.
"Oil prices have a triple or quadruple price boost associated with them. The first is supply/demand dynamics, the second is the weak dollar, the third is speculative fervor and the fourth inflation fears.
"A pundit said that last year it took 65 Euros to buy a barrel of oil and today it still takes 65 Euros to buy a barrel of oil. This illustrates the effect the weak dollar is having on U.S. prices and the international price of oil.
"Inflation protection used to be the province of gold, but now it seems oil is serving a similar function. We think the current oil bubble has not run its course.
"One of our past recommendations, the Oil Service Holders Trust (NYSE: OIH), was first suggested in February 2006 at a price of $101.50. We recommended it again in December 2007 at a price of $179.83.
"We like the fund better than raw oil prices because of persistence. Even if oil prices were to decline, production, exploration and development would persist even after. The tighter oil supplies and the greater difficulty of extracting oil from old wells, will keep these companies in business for years beyond peak oil production.
"This fund holds a limited number of equities in the oil service industry. Its top 10 holdings currently acount for 70% of the fund and its top positions are Transocean (NYSE: RIG) at 16.93% of the portfolio; Schulmberger (NYSE: SLB), at 10.73%; Halliburton (NYSE: HAL) at 9.83%; and and Baker Hughes (NYSE: BHI), at 8.29%."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
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