Capitalize on OPEC Fear

“Saudi Aramco prices oil according to sound marketing procedures — no more, no less,” Saudi Arabia’s oil minister said on Wednesday.

As you know, over the last four months, oil prices were sent spiraling into a bear market. And pundits — your editor included — have claimed that Saudi Arabia and the rest of OPEC are responsible for the drop.

Do Ali al-Naimi’s comments change our assumption?

On the surface, they sound good. Naimi also said, “Talk of a price war is a sign of misunderstanding — deliberate or otherwise — and has no basis in reality.”

And yet here we are: Saudi Arabia offered discounts to Asian countries in October, and oil prices are lower than they’ve been since after the recession in 2010.

The drop has sent consumers to the pump, drillers back to the drawing board, and investors to the exit.

But something important to take away from all of this is fear.

And not the fear tearing apart oil stocks at the moment. Rather, it seems OPEC and Saudi Arabia see U.S. shale as a serious threat…

Sound Marketing Procedures

When he says oil is priced via “sound marketing procedures,” Naimi alludes to fear within Saudi Aramco.

What could be a more sound marketing procedure than putting the squeeze on a huge, new competitor?

Most of the oil produced in the United States today is done either by fracking shale in tight oil formations or deepwater drilling in the Gulf.

Both of these methods are much more expensive per barrel than the conventional methods employed by Saudi Aramco.

By fooling with world oil prices and cutting the price for Asian countries, the drawdown on WTI forces U.S. drillers to plan new wells with tighter margins in mind.

Not to mention it hurts stock prices, which affect the CEOs and board members of the firms that drill in shale or deep water.

But as investors who are able flee, it’s important to remember that oil prices will likely go back up if OPEC maintains its level of production and pricing.

And that fear in the oil cartel should be a signal that U.S. production, especially from shale, is going to ruffle feathers for many years to come — not fizzle away the first time oil hits a bear market.

Another Breakthrough

While many drillers face tighter margins in basins throughout the United States because of Saudi manipulation, the writing on the wall is clear…

U.S. frackers refuse to go quietly.

Sure, some Big Oil players couldn’t keep up, what with bureaucratic overreach and stretched-thin budgets, but the smaller drillers are pumping out more crude than ever before.

So much that basins in the U.S. are breaking more ground and records for production.

In December of 2012, the Eagle Ford churned out about 848,000 barrels per day.

In December 2013, it produced 1.2 million per day.

And this week, the EIA announced that it projects the Eagle Ford will pump out 1.65 million barrels each day come this December.

Such dramatic increases can be found in the Permian Basin and the Bakken, too.

Clearly U.S. drillers haven’t hit the panic button yet and are simply doing more with less. Once the prices return to normal, expect newfound efficiency in the oilfield to reflect much higher profits for drillers.

Value That’s Hard to Pass Up

The only thing price fixing has accomplished is lower stock prices… and that’s great news for you and me.

Last time prices were this low was in 2010, and at the time, you could pretty much throw a dart at a list of oil stocks on a wall, invest in the one you hit, and make a killing.

Something like this gain from Pioneer Natural Resources (NYSE: PXD), maybe…

Now, oil prices are so low that a lot of stocks have returned to a similar oversold territory.

As a result, we have an historic opportunity to make money on U.S. oil drillers that still have plenty of value. But be wary…

Since most unconventional drillers face tight profit margins right now, the key is to find ones that can weather the storm of price manipulation and make it out stronger on the other side.

I’ve discovered three stocks that should do just fine right now and that will do even better once prices rebound. You can see them here.

These companies drill predominately in the Eagle Ford formation and have significant oil and gas assets.

The gas assets are interesting, too, since oil’s fall hasn’t resulted in a similar drawback for natural gas prices.

The Eagle Ford is projected to pump out 7.29 billion cubic feet in December, making it the second-biggest gas producer behind the Marcellus.

Add that together with oil production, and it’s hard to see these stocks slipping anytime soon.

Until next time,

Keith Kohl

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A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.

For nearly two decades, Keith has been providing in-depth coverage of the hottest investment trends before they go mainstream — from the shale oil and gas boom in the United States to the red-hot EV revolution currently underway. Keith and his readers have banked hundreds of winning trades on the 5G rollout and on key advancements in robotics and AI technology.

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