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It's Simple: Buy Oil, Make Money

Written by Keith Kohl
Posted July 11, 2018

It’s usually quiet in the office in the morning.

Lately, however, there’s been something in the air. My colleague, Luke Burgess, hit the nail on the head when he told you Monday that oil was heading higher... much higher.

Now, whether or not a super-spike truly takes place and we suddenly find ourselves buying a barrel of West Texas Intermediate for $150 remains to be seen.

It sounds a bit too close to hyperbole, doesn’t it?

After all, I was laughed out of the room in 2016 when I said crude oil bottomed and we were about to enter the bullish phase of the oil cycle.

Since then, WTI prices have increased by 163%.

And not a pundit out there can deny that the bulls have taken hold of the steering wheel.

Will the good times continue?

You bet your ass they will...

The Perfect Oil Storm

The perfect storm for higher oil prices is taking shape right before our very eyes.

After agreeing to boost production between 400,000 and 600,000 barrels per day, OPEC and Russia have shown they’re committed to higher prices.

By OPEC, I mean the Saudis, of course. The rest of the cartel is struggling to keep production steady.

Couple the most recent disruptions in Libya with the fact that Venezuela’s oil industry is on the verge of collapse, and it only makes sense that they pick up the slack elsewhere.

And that’s not to mention the looming November deadline for when sanctions on Iran kick in. This factor alone could push crude into triple digits.

Are we headed for a supply crunch?

We’ll see how Trump’s “zero tolerance” policy toward Iran turns out.

Ah, but that opens the door wide for another group of investors, doesn’t it?

As it stands now, the U.S. is exporting nearly 3 million barrels of oil every day, with half of those exports going to just two countries: Canada and China.

And with our oil exports set to rise dramatically in the coming years, you have to ask yourself one thing: Can anything stop it?

Unfortunately, there is an obstacle ahead for drillers... and there’s a small group of investors taking full advantage of the situation.

Deep in the Heart of Texas

Last month, we talked about an alternative group of profitable oil stocks.

The concept was simple, really. The fact is nearly seven out of every ten barrels of oil extracted in the United States every day is from our tight oil resources.

Moreover, almost 90% of all the oil and gas rigs in the U.S. are drilling horizontal wells.

Every single one of these wells will need to receive some sort of fracture stimulation to unlock the oil underground.

That means more hydraulic fracturing.

Naturally, one of the key ingredients for those operations is high-quality sand, which is used as a proppant to keep the cracks in the rock open so oil can flow more freely into the well. And believe me, it’s no surprise shares of Hi-Crush Partners have jumped nearly 10% over the last few weeks.

Today, however, we’ll look at another alternative to the typical drilling plays that the market hounds over.

Perhaps the biggest obstacle ahead for Permian Basin oil drillers isn’t a lack of access to high-quality sand.

It’s a lack of pipeline capacity.

Some of you might even remember years ago, when pipeline constraints in the Bakken caused producers to pay higher costs to get their oil to the market.

And the Permian Basin is about to experience similar pipeline issues.

More than 3.3 million barrels per day will be produced this month in the Permian region. That would make it the third-largest OPEC member, if Texas were invited to join the failing oil cartel.

Within a few months, however, higher oil production is overwhelming the state’s infrastructure. Once that pipeline capacity is hit — which could reportedly take place by October — operations will be curtailed.

That’s not good for drillers who are hoping to take advantage of higher oil prices.

But it’s not the drillers you have to look for in order to capitalize on this situation.

Midstream players like Plains All American Pipeline (NYSE: PAA) and Noble Energy (NYSE: NBL) are worth checking out.

Billions will be poured into projects aimed at expanding current pipeline capacity over the next few years, providing you and me with just the right opportunity to walk away with an easy winner.

Until next time,

Keith Kohl Signature

Keith Kohl

follow basic@KeithKohl1 on Twitter

A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.

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