Oil and Gas
No. 1 Way to Profit From Higher Oil Prices
Over the past week, the conflict between Russia and Ukraine has intensified. In response, sanctions on Russia, Putin and his wealthy cronies continue to pile up.
The ruble has plunged 26% and is now worth less than $0.01. And Russian stock markets have been halted.
The Russians are still exporting crude, but that could end soon.
It would be a striking blow to an already-weakened Russian economy. And it would make the situation in the oil markets even more dire.
So what could the price of oil climb to if the U.S. stops importing Russian crude? And is there a way to juice your portfolio if that happens?
I’ll answer those questions today.
The Big Picture
First, let’s take a look at Russia’s place in the world’s oil markets.
Russia is the third-largest crude producer in the world. The U.S. is the largest producer, followed by Saudi Arabia.
Cutting off Russian oil imports wouldn’t mean a whole lot here in the U.S. In 2021, only 3.5% of U.S. imported crude came from Russia. And that was the highest amount in two decades.
But imported Russian crude isn’t the only issue.
In 2021, the U.S. also imported about 3.5% of its gasoline from Russia. So all told, about 7% of America’s petroleum imports came from there.
The Western world is warming to the idea of halting imports of Russian petroleum products. A survey conducted by Reuters last Friday found that 80% of Americans are in favor of the idea.
That’s a large, bipartisan group. And these people know it could cost them even more at the pump.
Here in the U.S., gasoline and diesel prices are already soaring. At the beginning of the year, WTI crude was trading for $77.29 per barrel.
As of this writing, it’s trading for $128.48, an increase of 66.2%. And prices could go much higher.
Gas prices are already averaging $5.44 per gallon in California. And the national average is $4.17 per gallon.
Why Do We Import, Anyway?
Rising prices at the pump have plenty of Americans asking…
“If the U.S. is the largest oil producer in the world, then why does it need to import crude and petroleum products?”
On the surface, the answer is simple. There isn’t enough refining capacity here in the U.S. to meet domestic needs.
Most of U.S. crude and petroleum imports come from Canada, Saudi Arabia or Mexico. But what many people don’t know is the U.S. exports slightly more than it imports.
In 2020, the U.S. was a net petroleum exporter of 630,000 barrels per day. So on the surface, it may look like America could be energy independent.
But it’s really not that simple. Enter the Jones Act.
The Jones Act is Section 27 of the Merchant Marine Act of 1920. It states that any goods shipped between U.S. ports must be transported by vessels that were made by Americans and are owned and operated by Americans.
It’s an outdated piece of protectionist legislation that haunts the petroleum industry. That’s because the number of large American-made, -owned and -operated crude ships is inadequate.
This act makes it so that East and West Coast buyers in the U.S. can’t economically buy supplies of crude from Gulf Coast producers. It’s actually cheaper for these buyers to import what they need from other countries.
I don’t know whether the world will stop buying Russian crude. But unease over the idea is sending prices higher.
OPEC members aren’t inclined to increase production. Their recent meeting on the subject took all of 10 minutes.
The reality is they’re laughing all the way to the bank. Meanwhile, U.S. demand remains strong.
That means now is an excellent time to invest in one of the many oil-focused ETFs. One of my favorites is the Energy Select Sector SPDR Fund (NYSE: XLE).
Since the beginning of the year, it’s gone up 37.6%. And it’s gone up more than 8% in the last week alone.
I think the Energy Select ETF could see another 25% to 50% upside from here. That’s especially true if oil hits $150 per barrel.
Savvy investors could make some short-term gains in these tumultuous times.
There hasn’t been any significant dip in demand. Even if Russia keeps exporting its oil, there is no indication that prices would drop.
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