BOSTON ( TheStreet) -- It's easy to forget that gas pump prices broached the $4 mark in some places early this year, as economic and geopolitical issues pressured the outlook for supplies.
But prices at the pump have declined sharply and the price of gas is on the back burner in the minds of many consumers now, thanks to the slowing economy and the continued boom in production of oil and gas in North America due to the widespread use of new production technologies such as hydraulic fracturing (fracking).
The U.S. Energy Department reported this week that due to new drilling in North Dakota, Texas and the Gulf of Mexico, the U.S. is now pumping more than 6 million barrels a day of crude, up roughly a 10th since the middle of last year, and at the highest volume since 1998.
And that's only going to continue to grow, as the agency predicts that U.S. oil production from shale fracking will increase at a 5% annual rate for the next few years, and Canada's National Energy Board expects 5.5% growth there. This is a significant economic trend that's transformative for the national economy and represents an excellent long-term investment opportunity, particularly for domestic and Canadian oil and gas refiners and pipeline owners, as they're in the sweet spot of this event. For one thing, North American drillers are producing West Texas Intermediate (WTI) grade product, which is used as the benchmark for oil pricing in the U.S. It is an important distinction because due to its makeup, it's much cheaper for refiners to process than the imported Brent crude, which is a combination of crude oil from 15 different foreign oil fields, and as such, is much more complex and expensive to refine. As a result, U.S. refiners of WTI crude are getting a big cost advantage versus the imported Brent crude refiners, which turns into higher profit margins, since they can still fetch the same prices at the market for their finished product as the Brent producers, said S&P Capital IQ in a recent research note. "We see increasing North American crude oil production as positive for refiners with refineries in the Mid-Continent and Gulf Coast," said an S&P analyst. "We believe the location of these refineries provides them with access to the growing crude oil supply, enabling them to take advantage of lower cost (crude product)." Another big factor in the U.S. oil and gas industry's favor is that transport costs from the oil fields to refiners are low compared to any alternative and getting lower as more new pipelines come online near the oil fields. S&P analysts say they expect that "higher crude oil prices and the demand for energy infrastructure will benefit storage and transportation companies" this year and next as rising oil prices, company earnings and cash flow will help boost the big oil producers infrastructure spending on transport and storage. All this means business is booming for U.S. refiners that can handle the WTI crude as well as the pipeline companies that carry it from the far-flung oil fields to the refiners, and then on to storage and distribution sites. In fact, the storage facilities at the nation's oil pipeline crossroads of Cushing, Oklahoma, where WTI prices are set daily, are near capacity, so companies that own oil and gas storage facilities elsewhere are benefiting from that surplus. The long-term expectations are that these structural changes in the oil and gas industry will bring a new and lower normal for U.S. oil and gas prices, decrease oil price volatility, and make the nation less dependent on foreign resources. Here are eight stocks cited by S&P Capital IQ as being poised for long-term gains based on North America's booming oil production, arranged in inverse order of analysts' most positive ratings:
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV