U.S. crude oil prices hit a 5-month high yesterday as several factors converged on what was already a market driven higher by tighter supplies.

As I write, West Texas Intermediate futures, the U.S. oil benchmark, finished the day above $64, its highest price in more than 5 months.

Brent crude, the global oil benchmark, finished the day above $71 a barrel.

An escalation in fighting in Libya between UN-backed government forces and rebels has exacerbated what was already a more limited supply of crude oil. US sanctions against Iran and Venezuela have limited those countries oil exports.

All this was on top of what was already a tightening of supply by other OPEC countries.

The analysts at InvestorPlace have been watching all this and watching for the winners.

We’re fortunate to have some of the best market watchers around. They’ve been tracking developments like these and have regularly updated their subscribers about what stocks will win.

Neil George, editor of Profitable Investing, saw this scenario in oil beginning to develop back in November. Neil is an expert at dividend seeking and income investing. He has been tracking this market for winners for months now.

Here is what Neil wrote to his subscribers as the U.S. reinstituted sanctions against Iran, but the price of crude oil wasn’t rising.

The argument is that with slower overall global growth, including for China, and some pessimism for continued prosperity in the US economy, oil demand will soften, resulting in lower prices. Further, with the glut of oil in the US, there’s an implied cap on oil prices over time.

But that is missing the big problem in the US oil market. There is a glut because there is a backlog in oil that has to flow through existing pipelines to refineries as well as marine export terminals.

That is changing. Thanks to the Trump Administration stepping in to streamline approvals for expanding and adding pipes, the takeaway capacities for much of the pipe networks, particularly from the Permian Basin in Texas, will be improving quickly next year.

And thanks to the Canadian government in Ottawa greenlighting pipes and even directly funding pipes for oil and gas to get more moving from its western fields to refineries and export terminals, we will see improvements there, as well.

Credit where it is due, Neil was spot-on because that’s exactly what has happened. Here is part of Neil’s April update to his subscribers describing how the increase in pipeline capacity affected crude oil pricing.

What has been a limitation for US crude has been domestic stockpiles of stored crude. One of the big limitations has been the infrastructure to move crude to refineries and marine terminals for export. But as I’ve been writing, the approval process for additional pipeline capacity has been stepped up with pipeline companies continuing to add capacity to move stuck crude to the market.

This now is showing up with the dramatic drop in US stockpiles of crude as tracked by the EIA. The stockpiles are now down to lows not seen since last June and may well head lower with the further developments in transportation.

US Crude Stockpiles Down West Texas WTI Up Source EIA, Bloomberg

I asked Neil for a quick update yesterday…

Global demand remains above global supply. And OPEC+ is keeping its output mostly in line with little slippage as tracked by monitored tanker and pipeline traffic. Add in Iran sanctions, conflicts in West Africa and of course what was Libya and crude supplies aren’t rising.

US crude keeps rising in production. And with more pipeline capacity – it is now moving at a better volume which is helping to close discounted prices for clogged shales including the Permian. Add in the surging exports and WTI is narrowing in its discount to Brent. And with tankers coming to Europe with US crude – US production is increasingly setting the price for Brent on more days than not.

Those are both big developments for the sector. and explains a lot about why oil seems to have finally stabilized above the $60 mark.

So, what does this all mean for investors? We’ve got two picks to consider.

We’ve written just recently about Neil’s pick of Viper Energy, one of the picks in Profitable Investing’s Total Return Portfolio.

Looking at Viper’s chart over the last 5 months, it’s easy to see it mirroring the rise in crude oil prices.

For those who don’t know the company, Viper Energy is the leading landlord of the petroleum patch primarily in the West Texas Permian Basin which is at the center of the shale oil development in the US market. As a landlord, the company doesn’t drill or operate a single well – but instead, leases out its land for exploration and development companies (E&P) for fee income and royalties on the oil and gas that gets pumped out of its land.

Despite the recent volatility in the market, VNOM is up more than 13% since Neil recommended it to his readers. It also a healthy 6.01% dividend.

Neil is still calling this a buy below $38.

But domestic stocks aren’t the only winners.

As I wrote, InvestorPlace features several of the best analysts around. And in a stock picker’s market, such as the one we’re entering, you won’t find a better analyst than Louis Navellier, editor of Growth Investor. He has been tracking these developments, too. Here is what he said during his webinar rounding up the first quarter round up for his subscribers last month.

The United States has produced more oil than we ever have before, even the “go-go” 70s. In the United States, we’re going to net 1.1 million barrels a day to come online. We’re reversing some natural gas pipelines to get more crude oil to the refiners. And, this is a big deal. We are driving the bus. It’s not Saudi Arabia, it’s not Russia; we are. So, that’s why a country like Venezuela, which has been on the heavy side of crude oil business, only one of the places where it’s naturally occurring, are really struggling.

So, if oil prices just level out at a stable area, $50 or $60 a barrel, they’ll create windfall profits for a lot of energy companies. It’ll help the worldwide growth. Because when energy prices get up, emerging market economies tend to take it on the chin, spending more money for capita on energy than we do. So, I’m excited that emerging markets are starting to rally. I’m excited that we dominate the energy markets now.

Louis has several energy companies in his Growth Investor portfolio, including one international pick, Colombian oil company Ecopetrol SA.

EC is the largest oil company in Colombia and the fourth-largest in Latin America. Here is what Louis wrote about the stock when he picked it for his Growth Investor portfolio last May.

Ecopetrol operates in Brazil, Colombia, Peru and the U.S. Gulf Coast, accounting for 60% of the production in Colombia. The company is still largely state-owned by the government of Colombia, but a while back the nation restructured the company to ensure its global competitiveness and enhance shareholder value.

I’m recommending Ecopetrol right now because it is benefiting from reduced oil production in Venezuela, which is pushing global crude oil prices higher. The situation in Venezuela is dire, so much so that its national oil company defaulted on its debt and cannot pay many of its bills. This, along with Iranian crude oil supply concerns, caused Brent crude oil prices to rise.

Here is another stock pick where the price took a beating in 2018 and is mirroring the overall improvement in crude oil prices.

Last month EC released full-year 2018 results. EC announced a net profit of 11.55 trillion pesos, or $3.72 billion – representing a 74.6% increase over 2017 and its highest net profit in five years. The company also announced that it secured its first new oil and gas contract in more than four years. It also completed a deal for a 988,000-acre bloc in the Caribbean, where it will invest more than $250 million.

Louis is calling EC is a Moderately Aggressive buy below $22.

Given the current political climate, and the reality that efforts to control supply seem to be working, the oil sector is looking strong for the near term.

We’ll continue to keep you updated on this situation as it evolves.

To a richer life…

Luis Hernandez, Managing Editor
and the research team at InvestorPlace.com