×

Here comes $60 oil and the stocks set to make big gains

An oil well owned and operated by Apache Corporation in the Permian Basin of Garden City, Texas, on February 5, 2015.
Spencer Platt | Getty Images
An oil well owned and operated by Apache Corporation in the Permian Basin of Garden City, Texas, on February 5, 2015.

After bottoming near $26 per barrel in February, WTI oil prices have been improving in 2016, closing above $51 on Friday, the highest level since July 2015.

With a new OPEC deciding to forego its geopolitical differences in the name of economic survival and a new U.S. President-elect with a decidedly pro-business, less regulatory bias cabinet, are we about to see a new and improved oil market in 2017?

Any mention of a reduction in OPEC supply is met with some amount of market skepticism. While I do not expect much compliance from Algeria, Angola, Ecuador, Gabon, Qatar and Venezuela, if the big three, Saudi Arabia, Kuwait and the United Arab Emirates cut production a total of 750,000 barrels per day as they have agreed to, higher prices are ahead. If non OPEC countries led by Russia cut even half of their promised 300,000 barrels per day, so much the better.

And while the market has been laser focused on the oversupply situation, world demand continues to grow. The International Energy Agency predicts that world oil demand will grow by 1.2 million barrels per day in 2017 (in line with 2016) after increasing by 1.8 million barrels per day in 2015. The market looks much better balanced in the second half of 2017 with some forecasting the oversupply to disappear even sooner.

While OPEC compliance is today's number one concern for better days ahead, North American oil producers and oil service providers have figured out how to make money at $50 or less.

So where to invest? Deep in the Heart of Texas, in the Permian Basin. Followed by, no not North Dakota, but Canada.

"So where to invest? Deep in the Heart of Texas in the Permian Basin. Followed by, no not North Dakota, but Canada."

On Friday, the Baker Hughes Rig Count rose by 27 in the United States. Rig counts in the Permian Basin are 20 percent higher than this time last year, 246 versus 204. Let start with Apache Corporation. In September they announced a Permian discovery of 3 billion barrels of oil.

Other large Permian oil producers with significant amounts of acreage to drill on are Chevron, Occidental Petroleum, Pioneer Natural Resources and Concho Resources.

If these oil producers are going to get it out of the ground, then the midstream companies are going to benefit getting it to the market. That benefits companies like Plains All American Pipeline, Magellan Midstream Partners, Sunoco Logistics and Enterprise Products Partners that are constructing a pipeline capable of transporting 570,000 barrels per day of crude oil from the Permian Basin to Houston.

Back to Canada. Last week the Canadian Rig Count rose by 30. In fact, according to Baker Hughes, the Canadian Rotary rig count of 230 last week was 32 percent higher than one year ago when it was 174. Crescent Point Energy Corp revised its guidance upward in September and has increased its capital expenditures for 2017.

Even some oil sands producers are feeling better. Last week, Cenovus announced it was increasing its 2017 capital spending by 24 percent. Other beneficiaries of the higher oil prices are Suncor Energy, Husky Energy and Canadian Natural Resources Ltd.

If there's increased drilling in the U.S. and Canada, they need oil services and that means the usual suspects will benefit. Halliburton, Schlumberger, Baker Hughes and National Oilwell Varco.

If there is one area in which will suffer in the short term from all this good news it's the tanker industry. Less OPEC and Russian production equals less need for tankers. Those with exposure to the crude oil tanker market include Frontline Ltd and Nordic American Tanker.

$60 oil? Its right around the corner. $70 oil? Ask me in April.

Commentary by Andy Lipow, president of Lipow Oil Associates.

Disclosure: Andy Lipow and Lipow Oil Associates do not own or trade any of the stocks mentioned above.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.