Bright Spot of the Energy Sector

01/09/2014 10:00 am EST


Jim Jubak

Founder and Editor,

If the US crude oil export restrictions are lifted, it may turn out to be the boon the energy sector needs, writes MoneyShow's Jim Jubak, also of Jubak's Picks, who offers some stocks to watch while we wait for an Obama Administration policy change.

Pressure continues to build on the Obama administration to end a ban on US crude oil exports that dates back to 1975. Tuesday, Alaska Senator Lisa Murkowski, the ranking Republican on the Senate Energy and Natural Resources Committee, called for an end to restrictions on crude oil exports that date back to the Arab oil embargo. If the administration doesn't move, the Senator said she would introduce legislation to change the law. The Obama administration could end the restrictions by declaring that increasing exports was in the national interest, or by deciding that the crude oil had no market inside the United States and was therefore eligible for export.

With US oil production soaring—up 60% from the 2008 production low—thanks to new production from shale geologies in states such as Texas and North Dakota, restrictions that essentially ban US crude exports have led to a big price disparity between the grades being produced in the United States and international benchmark grades. For example, Tuesday, January 7, Light Louisiana Sweet sold for $100.15 a barrel, while the Brent international benchmark was $107.06 a barrel.

Ending the export restrictions would be a boon to US producers, who would see the price for their oil rise toward global benchmarks, and for US pipeline companies that would see rising demand for transportation to move oil to export ports. An end to the ban would hurt US refiners, who have profited from being able to turn lower priced US crude into global exports of refined products. (Although the advantage to refiners has been spotty since some US refineries aren't suited to refining the light, sweet grades of crude being produced from recent discoveries.)

Having done about all it could to increase US crude exports, by granting export licenses to Canada (permitted under the current system), I think the Obama administration is likely to move to grant new export licenses to countries other than Canada in 2014. That policy change would turn US oil producers into a rare bright spot in an energy sector that is looking at stable or falling global oil prices in 2014. Stocks I'd take a look at are Pioneer Natural Resources (PXD), Concho Resources (CXO) and Targa Resources Partners (NGLS). Pioneer Natural Resources is a member of my Jubak Picks 50 long-term portfolio. Targa Resources Partners is a member of my Jubak's Picks 12-18 month portfolio

Full disclosure: I don't own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did not own shares of any stock mentioned in this post as of end of December. For a full list of the stocks in the fund see the fund's portfolio here.

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