How to Profit from the Greedy Oil Companies

I just went to fill up my gas-guzzling SUV, and what I paid was one of the highest bills ever. With oil prices managing to hold around $100.00 a barrel for West Texas Intermediate (WTI), the price of gasoline at the pumps continues to be absolutely insane—not as expensive as Europe and parts of Asia, but nonetheless a major hit to your wallet. 

Yet while consumers and companies pay the brunt of the high oil prices, the fat cats at the oil companies are quickly adding to their coffers and making tons of oil profits. 

The only positive news here is that the country has reduced its dependence on Middle East oil and that, folks, really is a good thing. We don’t want to be held hostage by OPEC oil. 

Of course, as many of my astute readers know, the major reason why we are becoming less dependent on foreign oil (excluding oil from the Canadian tar sands), is the rapidly growing extraction of domestic shale oil from the hotbeds in North Dakota and Montana.

 In 2012, shale gas represented 39% of total natural gas production in the United States, according to the U.S. Energy Information Administration (EIA). Canada was second at 15%. These numbers are estimated to grow even bigger. The U.S. has the best technology for squeezing oil out from between rocks in the shale deposits, and it will only improve as we move forward. 

The rising production of shale oil has made the price lower in comparison to the more expensive and heavier Brent Crude oil at around $109.00 per barrel. 

Take a look at the chart comparing the oil prices of WTI (red candlesticks) to Brent Crude oil prices (green line). The spread between the prices of the two oils has widened, and this will likely continue, as domestic oil production rises, lowering WTI oil prices, based on my technical analysis. 

 

                                                Chart courtesy of www.StockCharts.com 

Now, while WTI oil prices are cheaper than Brent Crude oil prices, it is still at $100.00 a barrel and we are still paying huge sums at the pumps. I really don’t expect this to change, even as the domestic production moves higher—the reality is that oil companies are greedy. 

With all of this in mind, I suggest considering buying up the oil companies, both the upstream producers and downstream retailers. They will continue to deliver big profits to investors due to the high oil prices. 

One area I really like to keep a close eye on is the oil services and oil companies that are involved in shale oil, including Continental Resources, Inc. (NYSE/CLR) and Whiting Petroleum Corporation (NYSE/WLL). These are two examples of excellent companies with loads of potential. 

In the small-cap space, I suggest taking a glance at a company like Kodiak Oil & Gas Corp. (NYSE/KOG), which has been accelerating higher on the chart. 

 

                                                Chart courtesy of www.StockCharts.com 

This mid-cap owns and controls about 154,000 net acres of land at the company’s operation in the Williston Basin in North Dakota. The revenue growth has been stellar, rising from $11.3 million in 2009 to $409 million in 2012. Kodak Oil & Gas is the type of company that holds big promise going forward. 

This article How to Profit from the Greedy Oil Companies was originally published at Daily gains Letter