President Trump is getting some help in his feud with OPEC…
Yesterday, I told you that Trump had set his sights on the oil cartel because it’s colluding to raise oil prices.
You see, during a meeting last week in Saudi Arabia, OPEC agreed to cut production by 1.8 million barrels per day. But most members cut more than necessary. Bloomberg estimates that members have actually cut more than 2.4 million barrels per day.
Prices spiked 10% after the meeting…
To make matters worse, the supply cut is coming as global demand is increasing. According to AAA, U.S. gas demand is at record highs:
The Energy Information Administration’s (EIA) latest data registers consumer gasoline demand at 9.857 million (barrels per day). That is the highest level ever on record for the month of April and exceeds typical summer demand measurements. As demand skyrockets, gas prices increased across the country on the week with five states seeing double-digit jumps.
That demand is showing up at the pump. In April 2017, the average national price of regular gas per gallon was $2.40. Today, it’s $2.76—a 15% increase.
At the meeting in Saudi Arabia, the cartel (along with Russia, its partner in collusion) also announced plans to boost oil prices up to 40% by year’s end. So the pain at the pump will only get worse.
It’s no wonder Trump took to Twitter to criticize the cartel for “artificially” propping up prices…
But one group of U.S. oil drillers is answering the call. They’re trying to fill the void created by OPEC’s production cuts.
They’re pushing the U.S. oil infrastructure to the max… and this is creating a great, sustainable profit opportunity.
Today, I’ll tell you who these oilmen are… and how to add some exposure to your portfolio.
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Oil Production Is Ramping Up
According to the EIA, U.S. oil production increased from an average of 8.5 million barrels per day in 2016 to an average of 10.3 million per day this year. That’s a 21% increase.
And we’re pumping more oil than ever. As you can see below, U.S. oil production is at all-time highs.
U.S. oil frackers in the Midwest are the main source of this growth. But that growth may stall very soon…
Our infrastructure is running at maximum capacity. And it takes time to build more pipelines.
For example, Enterprise Products began a pipeline project in the West Texas Permian Basin in 2017. It expects to complete the project in 2019.
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While oil producers wait for pipelines to finish, they usually slow down production until pipeline capacity clears out.
That’s not the only challenge facing U.S. oil drillers. Insiders estimate that companies have deployed almost 90% of fracking supplies and equipment.
And even if we could produce more fracking equipment and add capacity, there aren’t enough workers to pump the oil.
One drilling company said it now schedules crews more than a month in advance due to the shortage of manpower. In the past, they would schedule crews only two weeks in advance.
Lack of pipeline capacity, scarcity of fracking equipment and supplies, and a dearth of oilfield workers are combining to keep supply low.
Eventually, we’ll get more U.S. oil on tap… But in the meantime, limited supply means prices will remain high and remain higher for longer.
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How to Profit From America’s Energy Response
We have record U.S. production and high oil prices. And the supply constraints I mentioned above mean that no one can flood the market to lower prices.
That will lead to record profits for U.S. oil drillers—especially shale drillers. More importantly for you and me, it’ll lead to higher share prices.
The easiest way to buy a basket of fracking companies is through the VanEck Vectors Unconventional Oil & Gas ETF (FRAK).
Since we recommended the ETF on February 14, FRAK is up 17%.
Now, it might take a little breather here… but the trend is up. And if oil continues increasing in price like it is now, we’ll see FRAK go even higher.
Regards,
Nick Rokke, CFA
Analyst, The Palm Beach Daily
P.S. U.S. oil companies are trying to fill the void created by OPEC supply cuts. Will you invest, protest, or write to Congress? Let us know right here…
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