Higher Oil Prices Could Help Junior Oil Producers
American Petro-Hunter (AAPH), Stone Energy Corporation (SGY), Rosetta Resources Inc. (ROSE) and other junior oil producers and development-stage exploration companies could stand to benefit the most from higher oil prices.
American Petro-Hunter [[AAPH.OB]] is one junior oil producer that could see strong growth the next few years, given its prospects in Kansas and California, if oil prices continue to rise higher. Often times, junior oil producers and development-stage companies trade at low multiples that can rapidly expand when they reach profitability – and higher oil prices can help the process along.
The oil industry itself has been experiencing a bit of turbulence during the past few years, with crude prices experiencing rapid triple-digit price swings. However, the long-term fundamental picture remains the same, with demand expected to rise as the economic crisis subsides and economic stimulus packages go into effect in various countries around the world.
In the short-term, however, oil prices have fallen to approximately $71.50 per barrel on concerns that gasoline demand will decline as a result of increasing unemployment in the United States. Meanwhile, many oil traders are closely watching new regulations designed to decrease price volatility in the oil markets by imposing large fines on those abusing the system.
Three Catalysts for Higher Oil Prices
Many analysts believe that oil prices will rise in the long-run for a number of reasons. The largest of these reasons is the fact that several developing countries are beginning to see an improvement in gross domestic product per capita, and as a result, more demand for automobiles and oil-supported infrastructure. For example, China’s auto industry grew 351% since the turn of the millennium in 2000.
A second catalyst for an increase in oil prices over the long-run is the strong possibility of inflation in the United States. After all, an increase in the money supply currently being to support economic stimulus packages is expected to produce inflation over the long-run, which will lead to an increase in prices as oil barrels as they are denominated in U.S. dollars.
Finally, instability in the Middle East is another major factor behind a rise in oil prices. Conflict-ridden countries like Iran and Iraq control a large amount of the world’s oil supply, while the OPEC cartel is beginning to improve its control over supply to meet its desired pricing. With more trading regulations, it is likely that these prices will be even more sustainable.
Conclusions
In the end, American Petro-Hunter is one junior oil producer that could benefit if oil prices continue to rise and its prospects in Kansas and California deliver on their promise.
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