This past Friday saw the stock market close out the worst week for investors in months. As this week has kicked off, though, some industries have cause for optimism. U.S crude oil prices just hit their highest peak since 2014, increasing by 2.7% and exceeding $77 per barrel. As a result, despite a turbulent trading day as some industries work hard to recover, many oil stocks are enjoying profits.
What’s Happening With Oil Stocks
This morning the Associated Press reported that OPEC had reached an agreement with allied oil producers to “cautiously raise production” amid the current boom spurred by increases in demand across global markets. According to the Financial Times, “Members had agreed this summer to add 400,000 barrels a day of production each month until the end of next year.”
It wasn’t long before oil stocks started to rise. Mexco Energy Corporation (NYSEMKT:MXC) closed up by 46%, and its peers had a similar day. Superior Drilling Products (NYSEMKT:SDPI) closed up 23.7% while Ring Energy (NYSEMKT:REI) and TransGlobe Energy (NASDAQ:TGA) gained 18.8% and 11.8%, respectively.
What It Means
Recent coverage of the oil sector has primarily centered around the impending energy crisis and supply-chain disruptions. This has cast some doubts over the future of oil stocks, even acknowledging gains like we’ve seen today and last week.
It’s understandable that oil companies would want to meet an increasing demand as oil prices increases, thereby driving up the prices of their shares. The type of energy crisis that is approaching, though, will pose negative effects on companies that consume and utilize a considerable amount of power, which certainly applies to those that mine oil.
We’ve seen what happens when the demand spikes for natural gas and coal the providers are unable to meet it. Now with winter coming to the northern hemisphere, demand for these fuel sources will only increase. Companies that provide any material that heats homes and industrial buildings should be in for a prosperous winter season, pending the energy crisis doesn’t halt production.
Why It Matters
Despite scary headlines, oil stocks will likely continue to grow throughout the coming winter. The only complication to be mindful of would be the companies rushing into over-production which could serve to send prices down. With this type of demand, though, it’s unlikely that such a scenario would send prices down by too much.
It’s worth noting that all four companies discussed above are still relatively cheap, even with their gains today. If you’re considering a bullish play on oil, they are certainly worth a look. Demand is already increasing and as it expands, small companies operating in the sector have the perfect opportunity to grow and increase their market share.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.