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When Oil Rebounds, These Companies Will Soar

By Matt Badiali, editor, S&A Resource Report
Wednesday, October 22, 2014

If you're worried about U.S. oil stocks, today's essay is for you...
 
Over the past few months, the price of oil has crashed. Meanwhile, many oil stocks are down double digits.
 
That's a big loss. But the downturn is creating a great opportunity for investors...
 
As regular Growth Stock Wire readers know, new drilling techniques have allowed the U.S. to tap into vast oil and gas reserves locked away in shale.
 
As a result, U.S. oil production has increased 63% from the low in 2008 to today. That's a massive increase in a short period of time. And as we've shown in these pages before, these technologies will help U.S. oil production keep soaring.
 
But rising supply of oil and a strong U.S. dollar have caused the oil price to fall recently. West Texas Intermediate (WTI) crude oil has fallen from around $106 per barrel in June to about $83 per barrel today.
 
This has caused investors to flee oil stocks. The SPDR Energy Select Fund (XLE) – which holds big oil producers like ExxonMobil and Chevron – closed down 18% on Monday from its June high.
 
What investors are forgetting is that oil is tremendously cyclical. That means its price moves in waves. It goes through cycles of boom and bust. And the best time to buy oil stocks is when everyone hates the oil sector.
 
You can see this in the below chart of the price of WTI crude and XLE...
 
In the past five years, the price of oil was in "bust" mode five times (the red arrows) due to temporary fears of oversupply. But after each time, the world realized there was still more demand for oil than supply. Oil prices went on to boom an average of 39% (the green arrows show the peaks). Oil stocks followed the oil price and soared an average of 37%.
 
 
At today's $83-per-barrel price, oil is at its historical average. Over the past five years, oil prices fell as much as 29% before recovering... while oil producers have fallen as much as 26% before recovering. So the price of oil and oil stocks could fall a little further from here.
 
But they will recover, as they did previously.
 
As we've shown you in these pages before, while U.S. oil supply might be increasing, world oil demand will continue to outpace world oil supply.
 
According to the Energy Information Administration, the world will need 94.1 million barrels of oil per day in 2015. But the world will only produce 92.9 million barrels of oil next year. That number includes America's production.
 
More demand than supply should push global oil prices higher in the months ahead.
 
And as my colleague Jeff Clark showed you last week, with the U.S. dollar breaking down, the next oil rally could be just around the corner.
 
You see, assets like oil often trade opposite of the U.S. dollar. So oil falls when the dollar rallies... And oil rallies when the dollar falls. With the dollar falling, oil should soar as it becomes more expensive relative to the U.S. dollar.
 
In short, history shows the next "boom" in oil could be worth 37% gains in oil stocks through XLE.
 
But the gains could be even bigger in shale producers.
 
You see, while XLE is down around 18% since June, 10 of the best shale oil and gas producers in the world are down more than that. Take a look:
 
Company
Decline from 52-Week High*
Apache Corp (APA)
29%
Cabot Oil & Gas (COG)
27%
Chesapeake Energy (CHK)
35%
Continental Resources (CLR)
30%
Devon Energy (DVN)
27%
EOG Resources (EOG)
21%
Noble Energy (NBL)
28%
Pioneer Natural Resources (PXD)
23%
Range Resources (RRC)
28%
Southwestern Energy (SWN)
34%
* Based on Monday's closing price

These are the best shale companies in the world. They are the companies responsible for the surge in U.S. oil and gas production.
 
If you don't already own some of these names, I recommend looking into a few today. When oil enters its next "boom" phase, the share prices of these companies will soar.
 
Good investing,
 
Matt Badiali

P.S. The U.S. government will play a crucial role in harnessing the full potential of U.S. shale energy. That's why I believe the 2016 presidential election will be one of the most important in recent history. In fact, I just spent the last three months writing a special report on this phenomenon... and how you can put yourself in the best possible position to profit from it.
 
It's some of the most important wealth-generating information I've ever published. And you can gain immediate access with a risk-free trial subscription to the S&A Resource ReportClick here to learn more.



Further Reading:

Find more of our latest research on the U.S. energy boom – and how to invest – here:
 
How Iraq Will Help Push U.S. Oil Stocks Higher
While U.S. oil production is soaring, that's not the case with the rest of the world. And more oil demand than supply will be great for U.S. oil stocks...
 
How to Invest With One of the World's Smartest Oil Tycoons
This company is expected to grow its production "by roughly 30% next year."
 
This Oil Expert's Favorite Stock Has Huge Upside Potential
"There are no signs of this growth stopping as the company continues to find more reserves."

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Market Watch
Symbol Price
Change
52-Wk
S&P 500 1936.16 +1.7% +11.0%
Oil (USO) 31.35 +0.7% -12.8%
Gold (GLD) 120.17 +0.3% -5.4%
Silver (SLV) 16.81 +0.5% -21.5%
U.S. Dollar 85.33 +0.4% +7.1%
Euro 1.27 -0.8% -7.1%
Volatility (^VIX) 16.40 -11.7% +24.6%
Gold Stocks (^HUI) 191.40 +0.1% -17.3%
10-Year Yield 2.21 +1.4% -15.3%

From The Crux
World ETFs
Symbol Price
Change
52-Wk
India (IFN) 26.53 +1.8% +33.2%
USA (SPY) 193.72 +1.8% +13.2%
Israel (ISL) 17.15 +2.2% +9.7%
Taiwan (EWT) 15.29 +1.3% +7.2%
China (FXI) 38.39 +0.3% +2.5%
Canada (EWC) 29.80 +2.1% +4.1%
S. Africa (EZA) 66.07 +2.7% +0.4%
Singapore (EWS) 13.16 +1.1% -0.7%
Japan (EWJ) 11.14 -0.2% -6.5%
Lat.America (ILF) 35.56 -2.1% -9.4%
S. Korea (EWY) 57.82 +0.4% -10.2%
Russia (TRF) 11.91 +0.7% -22.6%

Sector ETFs
Symbol Price
Change
52-Wk
Biotech (PBE) 47.30 +2.3% +38.4%
Transportation (IYT) 151.41 +2.8% +24.7%
Health Care (IYH) 133.46 +2.4% +22.7%
Semis (PSI) 21.38 +2.8% +20.7%
Utilities (XLU) 43.67 +0.2% +18.1%
Big Tech (QQQ) 96.69 +2.4% +19.2%
Real Estate (IYR) 73.07 +0.9% +13.8%
Defense (PPA) 31.83 +2.0% +14.5%
Consumer Svcs (IYC) 123.69 +2.0% +10.2%
Financials (IYF) 83.21 +1.7% +9.9%
Basic Mat (IYM) 83.34 +2.1% +9.9%
Industrials (IYJ) 100.06 +2.2% +8.4%
Insurance (IAK) 46.56 +2.0% +4.7%
Telecom (IYZ) 29.27 +1.2% +3.3%
Water (PHO) 24.94 +2.3% +3.0%
Software (PSJ) 34.79 +2.2% +3.4%
Construction (PKB) 20.74 +1.9% -0.5%
Media (PBS) 24.27 +2.1% -0.4%
Retail (PMR) 33.41 +2.1% -2.4%
Alt. Energy (PBW) 5.84 +2.3% -11.9%