It’s official — we’re in a bear market for oil.
The price of a barrel of West Texas Intermediate cratered overnight. At a smidge over US$80 per barrel, the US crude oil benchmark is plumbing its lowest level since June 2012.
Oil is now trading more than 20% cheaper than it did just five months ago.
Make no mistake, a price war is on.
Nobody seems to know how low oil can go…least of all, the cartel leaders at OPEC.
Free Reports:
You know we live in a weird world when the Middle East destabilises…and the oil price retreats.
As oil has hit the skids, so too have the share prices of large Aussie energy stocks.
From Woodside Petroleum Ltd [ASX:WPL] to WorleyParsons Ltd [ASX:WOR], companies whose fortunes depend on oil are feeling the heat.
So does this mean oil stocks are a no-go zone?
Not on your life…
A seismic shift has hit the oil industry.
The world is awash in a torrent of newly drillable American oil.
Global crude oil output has tracked sideways for the past few years over pretty much the entire planet…except for the US.
America’s shale bounty has added more than three million barrels per day to the world’s oil supply. That’s enough to disrupt a market that produces just over 80 million barrels of oil each day.
In the past, a glut of oil like this would have prompted Saudi Arabia to cut output in a bid to shore up prices.
It could do that in the knowledge that its cartel cronies would follow suit…and no OPEC nation would take too much of a market share hit.
But the world has turned.
In response to declining oil prices, the Saudi princes have announced that they would lower the price of their exported oil.
They’d rather preserve their share of a shrinking pie than let the US muscle into their market.
It’s not just the Saudis rushing to cut prices either. ‘State-run National Iranian Oil Co.’, Bloomberg reports, ‘cut official selling prices of its crude to buyers in Asia for November’.
I guess they heard a whisper that the International Energy Agency (IEA) would cut its oil demand forecasts overnight.
But maybe they’re the only ones, because today’s New York Times speaks of ‘a split among OPEC leaders about what action should be taken, if any, to halt the slide.’
It remains to be seen if the likes of Nigeria and Angola will join the price war and aggravate oil’s slide.
For OPEC members to diverge like this is a big deal. As investors, we’re exploring uncharted territory.
That means the direction of this oil market is tough for even seasoned veterans to forecast.
But if you’re adventurous, you can play both rising and falling oil prices.
Better yet, you can invest in energy stocks whose fortunes could boom regardless of whether the commodity trades at US$30 or $300 per barrel.
My colleague Callum Newman has pinpointed the impact that this has on the Aussie energy market.
You see, we too can reap the benefits of the American shale bonanza.
But you have to be highly selective when it comes to Aussie shale stocks.
Yesterday in Money Morning, Callum showed you why American oil giant ConocoPhillips [NYSE:COP] has just given up exploring for shale energy on Australian shores.
Exploring in the Canning Basin is where ConocoPhillips went wrong.
2,300 kilometres north of Perth in Western Australia, the Canning Basin is not exactly a convenient spot to go prospecting.
That remoteness, and the lack of infrastructure, trimmed the likelihood of ConocoPhillips making a return on its investment.
As Callum noted,
‘That’s one advantage American shale has had all along. A lot of the infrastructure and expertise from the conventional oil industry was accessible straight away. The one area in Australia where there is something like this kind of legacy is the Cooper Basin in South Australia.’
Callum highlighted two ASX-listed oil companies operating in the Cooper Basin. The market has punished the share prices of both…but you can’t keep energy stocks with solid fundamentals down forever.
That’s why we have another highly prospective Cooper Basin explorer on the Australian Small-Cap Investigator buy list.
As a speculative company, it’s only for investors with a strong risk appetite. But with well quality updates coming thick and fast, this stock gives you the potential to reap healthy rewards.
Riding Australia’s shale revolution is one way that you could potentially make big money from this topsy-turvy energy market.
But I’ve found an even better way to potentially bolster your portfolio through oil stocks.
I call it ‘wildcatting’…and it can bring courageous traders returns of double, triple or quadruple their original investment.
Wildcatting is when a company drills exploration wells in an area unproven as an oil field.
These intrepid explorers drill for black gold at the technical frontier. Sometimes they run with little more than promising geophysical data, deep market wisdom or good old-fashioned gut instinct.
And one of the last frontiers of energy is Africa.
That’s where my wildcatter oil stock pick for Australian Small-Cap Investigator, FAR Ltd [ASX:FAR], has just hit the big time.
FAR has announced extremely promising results in the past few weeks. The stock has rocketed by 242% in just two months, and some of my readers are getting rich on the ride.
So you see, big profits are on the table among oil stocks…even when the spot price of the commodity declines.
Don’t despair if you missed FAR’s meteoric share price rise.
The best part about wildcatting is that a bigger, better opportunity is always around the corner.
And my pal Jason Stevenson has locked onto the next oil stocks that could bring gigantic profits back from the energy frontier.
Jason is the resources analyst at Diggers & Drillers. He has a great eye for energy-linked stocks…and he’s red-hot on bringing private investors the best prospects from the resources sector.
The oil markets are exciting Jason right now. That’s because he’s spotted the next Aussie wildcat winners. These stocks could bring you profits that leave FAR in the shade.
More on that tomorrow…
Cheers,
Tim Dohrmann+
Editor, Money Morning
The post How You Can Bring Profits Back From the Oil Frontier appeared first on Stock Market News, Finance and Investments | Money Morning Australia.