Over the past year the price of WTI Crude is up almost 100%. There are two factors that have driven up the price of oil. One is that demand collapsed last year as pandemic measures were implemented and people stopped traveling. The price of oil plummeted. That, in turn, ended up idling 3 million barrels per day (BPD) of U.S. oil production relative to a year ago.
Oil demand is now bouncing back. Supply hasn’t responded as quickly, and therefore that puts pressure on prices.
Second, unlike a year ago, OPEC and Russia recently decided to cooperate by extending most of the current output cuts. Despite some recovery in demand, Saudi Arabia kept in place a 1 million BPD cut. That decision sent oil prices sharply higher, and will likely ensure additional gains in gasoline prices.
As an investor, how can you benefit from these rising prices?
First, you need to understand how the market works. The Oil and Gas market consists of 3 kinds of companies:
- Upstream companies that explore and produce energy,
- Midstream pipeline companies that transport and store energy
- Downstream companies that refine oil and gas into finished products.
Knowing that, which companies should you focus on?
Based on news last week of a landmark decision by the North Dakota Supreme Court ruling oil royalties which producers pay landowners should be calculated at the well, not at a higher price at some point downstream, upstream companies look like a good place to place your bets.
There are a few upstream companies you should start researching right away. Allied Energy Corporation (OTCMKTS:AGYP), Kosmos Energy (NYSE:KOS), and Continental Resources (NYSE:CLR)
Allied Energy Corporation (OTC:AGYP), an energy company focused on leasing and reworking oil and gas reserves in the most prolific hydrocarbon areas of the United States; announced last week the leasing of five additional wells at the 300 Acre Annie Gilmer Lease.
The Annie Gilmer lease is located in Crystal Falls, Texas. There were six wells drilled on the lease starting in the mid 70’s with the last being drilled in 1989. Since the initial well, the lease has produced over five hundred thousand (500,000) barrels of high gravity oil and over five hundred million (500,000,000) cubic feet of very rich natural gas. There are two permitted saltwater injection wells on the lease. One of the injection wells will be re-converted to an active oil and gas producer.
Currently down 50% off it’s February high, with a decent sized short position reported by the OTCshortreport, any sort of momentum could result in a squeeze bringing the company back to it’s highs.
Kosmos Energy (NYSE:KOS) is an oil and gas explorer focused on offshore Ghana, Equatorial Guinea and the U.S. Gulf of Mexico. The dual-listed (NYSE & London) company’s low-cost assets, growing free cash flow generation and solid balance sheet are likely to increase shareholder returns.
Continental Resources (NYSE:CLR) reported Q1 earnings and revenue that topped analyst expectations in April and said dividend payments will resume.
CLR stock failed to break out of a cup base earlier this month and is still working on forming a solid base.
Harold Hamm, Continental’s founder and CEO, stepped down last year and assumed the role of executive