I write about oil stocks quite a bit. One reason I do this is because of the sheer size of the market. At over $2 trillion, crude oil is bigger than the top 10 metal markets combined in terms of production value.
But despite the market’s massive size, there simply isn’t enough oil to go around. As I wrote in this special report, nearly every area of our lives today depends on fossil fuels like oil.
Oil isn’t just for vehicles and machines either. It’s a vital raw material in plastics, fertilizers, cosmetics, and medicine. But while the world’s demand for energy isn’t slowing down, the supply of oil is.
This high-demand/low-supply dynamic is why we hold several energy companies in our Blend Portfolio. As oil reserves continue to run low, these stocks should soar.
The rally has begun.
I admit that I was a bit early when I recommended the first batch of companies last February. Those stocks pulled back shortly after I wrote about them. With the energy sector now flirting with recent highs, however, our stocks have recovered their losses and are showing a profit.
Another energy company that I recommended last April is already up 24%. That’s more than 4x the performance of the S&P 500 over the same time period!
Even with these gains, I am still very bullish on oil stocks for the long term. I believe the biggest returns are still ahead of us and that we can profit off these positions for years.
My conviction stems from the current status of global oil reserves.
Let’s start with the U.S.
The government recently announced that they were delaying the refilling of the Strategic Petroleum Reserve (SPR). Their stated reason for the decision? “Market conditions” being “too expensive.”
The SPR, however, was meant to be an emergency supply to be used in time of war or when foreign imports were otherwise cut off, NOT as a tool to suppress oil prices.
As a result, the SPR currently holds only a fraction of its historical level, which you can see in this chart:
The story is similar outside the U.S.
OPEC data suggests that the global oil market is headed toward a supply deficit of more than 2 million barrels per day this quarter. That shortage is largely due to Saudi Arabia slashing production (source: Yahoo! Finance).
It’s not too late to buy oil stocks.
Even if you missed the recent rally, you’re not too late. Tight oil supply will provide tailwinds for energy stocks for years.
If you don’t want to buy individual stocks, consider investing in sector ETFs like the Energy Select Sector SPDR Fund (XLE) or the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).
If you’re looking for higher returns by investing in individual companies, check out the energy stocks we hold in the Blend Portfolio. Premium members already have access, and free subscribers can read about them with a 7-day trial. Cancel any time.
This article is for informational and educational purposes only. It is not financial advice in any way. Read the full disclaimer for more details.