Oil prices have been incredibly volatile this year. West Texas Intermediate (WTI), the primary U.S. oil price benchmark, started 2022 at around $75 a barrel before surging to more than $120 a barrel following Russia's invasion of Ukraine. While crude prices have cooled off since then on fears that a recession will cut into oil demand, WTI is currently hovering close to $90 a barrel, putting it up more than 15% on the year.
With all eyes on a possible recession, the market is missing the fact that oil supplies remain stressed. Oil field service companies are facing persistent equipment shortages, which are holding back the industry's ability to drill more wells. This shortage could further constrain supplies. Because of that, some analysts forecast that crude prices will rebound to $120 a barrel . That would send oil stocks soaring while giving companies more cash to pay dividends.
It takes a lot of equipment, personnel, and supplies to drill and complete an oil well. Oilfield service companies like Halliburton (NYSE: HAL) and Baker Hughes (NASDAQ: BKR) utilize powerful truck-mounted engines known as frack pumps to fracture underground rock formations, allowing oil and gas to flow out through the well. This equipment endures a lot of wear and tear. Because of that, companiess need to steadily replenish their fleet by investing in new equipment.
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This Shortage Could Send Oil Stocks (and Dividends) Soaring