I've been watching my June 2003 Motley FoolHidden Gems pick Valero
What's happened in refining has happened elsewhere up and down the oil value chain, from exploration and production to tankers to retail sales. But while refining -- with the statutory near-impossibility for additional capacity to be built in the United States -- has a pretty good ceiling on its supply levels, other areas in the production chain are feeling extreme tightness as well. For example, oil drillers and equipment providers.
In a January presentation, ExxonMobil
This trend bodes particularly well for the oil services sector, another bottleneck. Companies like Baker Hughes
Of course, we've seen this before. In the 1970s, it seemed as if the demand for oil would never slow down -- and then, suddenly, it did just that, with supply exceeding demand for the better part of 20 years. (Notice a pattern?) The difference between the 1970s and today was that back then, supplies were being artificially constrained. Today, that's not so much the case. During that time, high-cost producing fields, like those in the North Sea, weren't economical to operate.
The market has certainly rewarded these companies for the improvement of their underlying businesses, but it doesn't look like the oil services cycle, now in its fourth year, is anywhere near maturity.
Bill Mann owns none of the companies mentioned in this story. His selection of Valero for Hidden Gems was at a split-adjusted price of $18.93, so that's pretty good. A free trial to see what the Hidden Gems folks have cooking next is yours for the asking.