Energy commodity markets have been focused on demand issues lately, but last week, OPEC announced a production cut, putting supply back in the spotlight.
This cut in oil production will result in higher energy prices. That’s going to be a change from the past several months, where gasoline prices, for example, have been falling.
As investors, we need to adapt. So today, let’s take a look at five investments that will benefit from higher energy prices…
The West Texas Intermediate (WTI) crude oil price peaked in early June at $122 per barrel. From there, a long, steady decline led to a late-September bottom at $77 per barrel.
The decline in the price of oil has been driven by many traders’ shared belief that demand will lessen due to the China lockdowns and a global recession. The fall was further helped by the Biden administration releasing one million barrels daily from the Strategic Petroleum Reserve (SPR).
But that trend is likely to turn soon, with crude oil moving higher. Last week OPEC announced a two million barrel-per-day reduction in production and oil sales. At the same time, the SPR has reached dangerously low levels, which will limit future releases. The administration may be forced to start buying oil to replenish the reserve.
Global oil consumption runs about 100 million barrels daily, with supply and demand closely balanced. Pulling up to three million barrels per day out of the supply can only lead to higher prices. This tight supply problem is one without an easy solution. Boosting production by adding drilling rigs takes a lot of money, government permits, and time. OPEC knows it can control prices by restricting output from its member countries.
Recently, Wells Fargo listed these energy companies as high-momentum stocks that should outperform if the energy sector moves higher:
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- APA (APA)
- Devon Energy (DVN)
- Marathon Petroleum (MPC)
- Marathon Oil (MRO)
- Occidental Petroleum (OXY)
Marathon Petroleum is a refining company; the rest of the companies listed here are upstream energy producers.
This article originally appeared at Investors Alley.
