Bakken Stocks Are Booming!

| September 14, 2012 | 0 Comments

After a lackluster first half of the year, Bakken based oil exploration stocks are quickly getting back in good graces with investors.  In fact, companies operating in this specific region are some of the market’s leading performers over the past few months.

Take a look…

Oasis Petroleum Chart

As you can see, Oasis Petroleum (OAS), EOG Resources (EOG), and Continental Resources (CLR) are galloping higher in recent trading.  Look even closer and you’ll find these Bakken focused stocks are vastly outperforming the S&P 500 (pink line) since June 1st.

Why are investors all the sudden going bonkers for the Bakken?

After all, it wasn’t long ago that US based unconventional oil exploration stocks as a whole were in the gutter.  Investors were selling OAS, EOG, and CLR with reckless abandon earlier this year.

What’s changed?

Well, let’s get the obvious out of the way first.  The stock market as whole is strong and oil has rallied back near $98 a barrel.  These two factors are a clear tailwind for oil stocks no matter where they operate.

But there’s something else going on…

Maybe you don’t realize it, but crude prices differ from region to region here in the US.  And as recently as June 2012, Bakken crude was trading at a $14 discount to West Texas Intermediate Crude (WTIC).

That means when WTIC was trading at $80 in June, Bakken producers were getting a mere $66 a barrel.  Clearly, that’s not what you want to see if you’re an oil producer like Oasis or Continental.

But now the price disparity is swinging the other direction…

Ever since June went by the wayside, Bakken crude has made a phenomenal turnaround.  As a matter of fact, oil from the Williston Basin is now trading at a $5 premium to WTIC.  As a result, Bakken producers are now getting in the neighborhood of $103 a barrel.

What’s behind the rally in Bakken crude?

First of all, the Seaway pipeline reversal is quickly reducing the oil glut at the Cushing, Oklahoma supply hub.  As you may know, the Seaway runs from Cushing, down to the many refineries surrounding Houston, Texas.   This timely reversal is allowing more crude to flow out of the Bakken, thereby giving it a hefty price boost.

And that’s not all…

Railroads are playing an increasing role in transporting crude out of the Bakken.  In fact, Tesoro (TSO) received their first trainload of Bakken crude at their Washington State refinery on September 4th.  The refiner expects nearly 50,000 barrels a day will be transported by rail to this facility going forward.

What does all this add up to?

… Bakken takeaway capacity is increasing.

You see, takeaway capacity is the ability to transport oil out of the fields and into refineries.  The better the takeaway capacity, the quicker (and cheaper) it is to get oil to market.  And if there’s one thing that’s held Bakken oil producers back, it’s insufficient takeaway capacity.

But this problem is slowly reversing.  Pipeline companies and railroad operators are working feverishly to put additional transportation infrastructure into the Bakken.  Doing so will get oil out of the region more efficiently.

And here’s the best part…

Increasing takeaway capacity will greatly benefit Bakken oil producers.  In fact, we should see third quarter top and bottom line performance for OAS, EOG, and CLR improve drastically over recent quarters.

So if you’re looking to add oil stocks to your portfolio, keep Bakken focused producers at the top of your list!

***Editor’s Note***  Yesterday our friend and colleague Gordon Lewis added a stock to his Penny Stock All-Stars Portfolio that he thinks just about every investor should buy.  It’s a tiny company that has more cash in the bank than its entire market value… the kind of company Warren Buffett drools over!  Click here for more…

Until Next Time,

Justin Bennett

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Category: Commodities

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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