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Will Obama’s Speech Impact Oil Stocks?

Energy shares yawned Tuesday in reaction to reports that President Obama will call for increased U.S. oil and gas production in his state of the union address Tuesday evening.  That’s because the U.S. is already riding a production boom, with or without White House approval.

Domestic crude oil production increased to 5.5 million barrels per day in 2010 from 5.1 million in 2007, according to the Department of Energy.  In a forecast released Monday, the agency said production would likely grow by 20% over the next decade.

Credit a shift in technology, not politics. Easy oil deposits like the “bubbling crude” that shot up in Jed Clampett’s backyard have long been tapped, and the biggest oil producers had until recently reduced U.S. operations, leaving smaller drillers to go after the scraps. But these firms, using tactics like horizontal drilling and hydraulic fracturing, have learned to unlock vast amounts of oil and natural gas trapped in porous shale deep underground.

The result is nothing short of a production boom (and an energy jobs boom), and the majors want back in. Some analysts see the makings of a merger-and-acquisition spree, as large producers, awash in cash, snap up independent, shale-savvy operators (see Frack Attack: How to Play the Next American Oil Boom).

Increased production can lead to supply gluts and falling prices. Such is now the case with natural gas, which recently traded at a decade low. But oil prices remain plump because of strong demand from emerging markets like China and India. Companies are adjusting. Chesapeake Energy (CHK), the country’s second largest natural gas producer, said Monday it will slash production.  Halliburton (HAL), which provides services to a wide range of energy producers, said it’s shifting toward more oil work. (It’s shares jumped 3% Tuesday on a blowout earnings report.)

All of this makes the president’s call for higher domestic energy production about as timely as a call for lower house prices.

That’s not to say there aren’t still opportunities in the sector for investors. Shares remain affordable. The energy sector of the S&P 500 index trades as 10.6 times projected 2011 earnings, versus 13.0 times earnings for the broader index.

One way to invest is via the Energy Select Sector SPDR (XLE), an exchange-traded fund. It surged 19% during the fourth quarter of 2011, mostly due to a jump in oil prices.

Income investors might want to scan the sector for high or rising dividend yields. Chevron (CVX) and ConocoPhillips (COP) each recently yielded more than 3.  Each has increased its dividend payment for more than 10 years running, according to Standard & Poor’s. Exxon Mobil (XOM) yields a bit less, 2.1%, but no other energy company in the index has a longer record of consistent dividend increases. Payments have growth an average of 5.7% a year over the past 27 years.

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    • Yes, it is about domestic production and Obama did NOT “call for an increase in production” as the article falsely states, unless this article is referring to Obama’s increase in oil leases since he took office, which is the reason for the increase in domestic production. No serious person can deny that fact, and that is the obvious reason for the icreases in oil investors’ gains in the industry, as well as oil companies (since they began to get $4 per gallon before his election in 2008) returning to the gouging prices we already were used to from ’08. The writer’s mistake in this area I hope is based on his failure to begin paying attention before the recession and not some other agenda unrelated to what actually happened. This article obviously was written by someone who did not hear or read the transcript of the speech, hopefully not a “Pre-Republican rebuttal Republican rebuttal”?

    • I believe this article is about domestic oil production increasing. The amount of oil produced or not produced in the OPEC nations is what counts most in terms of supply and demand.

    • More lies, The Us pays Hi oil prices because our government permits it. Our gov. is the one that de-regulated oil so congress and the rich would make billions in stocks, they knew this would happen.

    • If this article is accurate and oil production has risen then why have gas prices doubled since Obama took office and why has the price of crude gone up not down. Seems like the law of supply and demand no longer apply or is there something else happening outside of that simple economic law of supply and demand? I would like an explanation and I think America deserves an explanation.

    • What exactly is the object of this article? Where are the numbers and comparisons to support this assertion. All I see is a possible 20 percent growth in the future. I do not get it.

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