In early January, WTI crude oil traded around $55 per barrel. As I write this, WTI oil is trading for $95 a barrel — up 70% from where the prices were at the start of the year. Diamondback Energy Inc. (FANG) is a stock to trade, notes Tim Plaehn, editor of The Dividend Hunter.
The primary cause of the price increase is oil tankers trapped in the Persian Gulf, unable or unwilling to travel the Strait of Hormuz, where Iran has threatened to attack shipping. At some point, in weeks or possibly a few months, ship traffic through the Strait will normalize.
But even once that happens, the news reports indicate it will take several weeks for traffic levels to return to normal. Because of this, I believe that crude oil prices will remain elevated and volatile for at least a couple of months.
Diamondback Energy Inc. (FANG)
Factoring in everything, I think WTI oil will stay at $90 or higher for two to three months. When we see a post-war price drop, I don’t expect it to fall below $70. The transport challenges arising from the Persian Gulf have raised concerns about other potential problems with the global energy transport network.
If my hypotheses are correct, US upstream energy producers will see windfall profits for at least the next few quarters. FANG is one upstream producer paying growing dividends and returning a significant portion of its free cash flow to investors through supplemental dividends or share buybacks.
It has a $51 billion market value, is growing its dividend by 21% per year, and yields 2.3%. Buying on dips can increase your portfolio income and build wealth as markets move higher.
