Special Report
Top 4 Ways to Play the New Bull Market in Oil & Gas
A new bull market in oil & gas is now virtually inevitable.
In 2022, oil prices soared to more than $125 a barrel following Russia’s invasion of Ukraine before pulling back considerably beginning last summer.
Many of the world’s most highly respected analysts are predicting significantly higher oil prices in the months ahead.
This includes Jeff Currie, global head of commodities for Goldman Sachs, who has issued a $110 forecast for Brent oil (the global benchmark price) in 2023.
Morgan Stanley has issued a similar prediction, calling for Brent to pass the $110-per-barrel mark by the middle of next year.
“Morgan Stanley said it expects Brent crude oil prices to rally to around $110 per barrel level by mid-2023, citing support from rising oil demand and continued supply tightness.”
— Reuters1
While there are many factors helping drive oil & gas prices higher, two in particular stand out as having significant impact:
Reason #1: Chinese demand for oil & gas is soaring – China has become the world’s largest consumer of oil & gas and over the past few years, the country’s appetite for energy has grown at an unprecedented rate.
The growth of China’s middle class has sparked even faster growth its demand for energy-intensive goods and services. This, in turn, has placed great pressure on China’s oil and gas supplies, which have struggled to keep up with demand.
According to the International Energy Agency (IEA), China accounted for more than 80% of the growth in global oil demand in 2020, even as the rest of the world experienced a decline due to the pandemic.
As China’s economy continues to rebound, its oil demand is likely to rise further, creating a favorable demand-supply imbalance that could push prices up.
This has led to China investing aggressively in oil & gas production around the world. China’s imports of oil & gas have also spiked significantly higher, helping add to global pressure pushing prices higher.
Reason #2: Global oil reserves are low – Another significant contributing factor to the inevitable bull market for oil & gas is the depletion of reserves and lack of new discoveries.
Many of the world’s largest oil fields – including many in the Middle East – are now approaching the decline phase of their life cycle after many decades of production.
In addition, exploration and production companies have reduced their capital spending on new projects in recent years due to low prices, and this has led to fewer new discoveries.
“According to Rystad Energy analysis, global recoverable oil now totals an estimated 1,572 billion barrels, a drop of almost 9% since last year and 152 billion fewer barrels than 2021’s total. Recoverable oil corresponds to the industry term “remaining technically recoverable crude oil and lease condensate”, i.e. expected volumes including fields, discoveries and risked future discoveries.”
— Rystad Energy2
This means that the global oil reserves-to-production ratio, which measures how long the current reserves can meet the current demand, has been declining steadily. This naturally should lead to a supply shortage and significantly higher prices in the near-term.
Thanks to these critical factors – among several others – the new bull market in oil & gas figures to be a strong one…the type of bull market where investors who know where to look can find many explosive potential upside opportunities.
To that end, what follows is a list of 4 oil & gas investments that appear to be best positioned to help investors take maximum advantage of this bull market in the months ahead.
As always, be sure to examine each potential investment carefully and consider your own acceptable level of risk before investing.
Oil & Gas Investment #1: SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) gives investors exposure to integrated oil and gas companies, oil and gas exploration and production companies, and refining and marketing companies.
In seeking to track the performance of the S&P Oil & Gas Exploration & Production Select Industry Index, the fund employs a sampling strategy.
It generally invests substantially all, but at least 80%, of its total assets in the securities comprising the index. The index represents the oil and gas exploration and production segment of the S&P Total Market Index (“S&P TMI”).
Oil & Gas Investment #2: Diamondback Energy, Inc. (Nasdaq: FANG)
Diamondback Energy, Inc. (Nasdaq: FANG), an independent oil and natural gas company, focuses on the acquisition, development, exploration, and exploitation of unconventional and onshore oil and natural gas reserves in the Permian Basin in West Texas.
It focuses on the development of the Spraberry and Wolfcamp formations of the Midland basin; and the Wolfcamp and Bone Spring formations of the Delaware basin, which are part of the Permian Basin in West Texas and New Mexico.
The company also owns, operates, develops, and acquires midstream infrastructure assets, including 770 miles of crude oil gathering pipelines, natural gas gathering pipelines, and an integrated water system in the Midland and Delaware Basins of the Permian Basin.
Oil & Gas Investment #3: Schlumberger Limited (NYSE: SLB)
Schlumberger Limited (NYSE: SLB) is a leading oilfield service player with operations in domestic and international markets. It is well placed to capitalize on the improving demand for oilfield services, given increasing drilling operations.The company engages in the provision of technology for the energy industry worldwide. The company operates through four divisions: Digital & Integration, Reservoir Performance, Well Construction, and Production Systems.
The company provides field development and hydrocarbon production, carbon management, integration of adjacent energy systems; reservoir interpretation and data processing services for exploration data; and well construction and production improvement services and products.
It also offers subsurface geology and fluids evaluation information; open and cased hole services; exploration and production pressure, and flow-rate measurement services; and pressure pumping, well stimulation, and coiled tubing equipment solutions.
Oil & Gas Investment #4: Devon Energy Corporation (NYSE: DVN)
Devon Energy Corporation (NYSE: DVN) is a U.S.-focused E&P company. It has diversified operations across several low-cost, oil-rich basins.
The company’s diversification enables it to produce lots of low-cost oil and natural gas, which allows it to generate plenty of cash.
The company explores for, develops, and produces oil, natural gas, and natural gas liquids in the United States. It operates in Delaware, Anadarko, Williston, Eagle Ford, and Powder River Basin.Analysts see substantial upside for investors over the coming 12-18 months, with an average target price of $68.96 – a significant jump from its current price.
The company also has not reduced its dividend since 2017 so that should only add to the potential upside for investors who consider this stock.