It appears that supply continues to outpace demand for crude oil and natural gas. Last week, we learned that U.S. crude oil stockpiles increased by one million to mark the third consecutive gain.
There’s an even greater glut of natural gas, with inventories of fuel for the winter are projected to reach record highs by the end of October. But once a broader economic recovery causes worldwide energy demand to ramp up once more at the end of 2009, these stocks will be in prime position to post breakout profits.
One of my favorite energy stocks is Southwestern Energy (SWN). The company is a pioneer in horizontal drilling–meaning instead of erecting many rigs that drill down into a gas field, it simply taps a well once and then drills sideways to access the remainder of the field. This technology keeps costs down while boosting output. Even if gas prices stay very soft, this horizontal drilling tactic will allow Southwestern to increase sales simply by bringing even more natural gas to the market.
Although it’s mainly a natural gas company, Southwestern has been challenged by massive supply and low prices. However, the company has responded by pushing production through the roof. In the latest quarter, output soared by 65%! That means even though the company is getting a lower price, it’s still posting great sales. Southwestern Energy continues to be a solid buy.