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Written by Lara Crigger  |

July 09, 2010

Matt McCall: Sizing Up Energy ETFs

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Commodities expert and founder of Penn Financial Group Matt McCall shares his insights on how energy ETFs have fared in the wake of the Gulf Coast oil spill.

McCall is the founder and president of Penn Financial Group, LLC, and co-author of 2009's "The Swing Trader's Bible: Strategies to Profit from Market Volatility." A vocal advocate of ETF investing, he's also a regular commentator on CNBC, Fox Business Network, Fox News Channel and Bloomberg.

Recently, HAI Associate Editor Lara Crigger sat down with McCall to get his perspective on energy ETFs in the wake of the offshore drilling moratorium, including which sectors stand to benefit most, why he likes MLPs and why he thinks Exxon has become a "value play."

Crigger: How has the moratorium on offshore drilling in the Gulf Coast affected energy ETFs?

McCall: With no definite end in sight to the moratorium, it's a bit concerning to me because, as you know, we need that oil. So with the moratorium on deepwater, and with shallow [drilling] really not getting the permits that they need either, there's going to be a crunch in supply.

Recently, Petrobras says it started drilling below 30,000 feet, whereas our government says we're not drilling anything below 5,000 feet. So I think this is going to be detrimental to our supply of oil, which is going to lead to higher prices.

Crigger: So why hasn't it affected prices in the short term yet, then?

McCall: In the short term, the reason has to do with the fact that many people believe in a double-dip recession, which means that demand for oil would drop dramatically. That's why we're seeing oil traded at around $70-71 right now and not trading at $85.

Crigger: What about natural gas? Do you think the supply crunch will bleed over into that too?

McCall: I do. That was my initial reaction when this took place - that natural gas will be the winner in the years to come. The reason is really twofold: one, because obviously we need to look for alternative energy fuel, and natural gas counts as that. Two, many environmentalists are actually behind natural gas, and I think our government will be behind it as well. It's cleaner burning than coal, and we have an abundance of it here in the United States. So you take the dependence off of drilling offshore and make drilling for oil a little bit safer.

Crigger: In light of this supply situation, and all the negativity surrounding drilling these days, why do you think we haven't seen any corresponding movement in alternative energy companies and ETFs?

McCall: Again, it goes back to the fact that people believe in a double-dip recession. Also, keep in mind that typically alternative energy does well when the price of oil jumps, and we haven't had that price jump in oil either.

That sector is just frowned upon right now. A lot of the money going into it was from Europe, and the slowdown in Europe is also having a direct effect on the ETFs related to alternative energy.