Profit From $60 Oil

There's nothing worse than fueling up your car these days. Thirty, 40, even 50 dollars later, you've paid through the nose to drive a few hundred miles.

Not that these high prices are making Big Oil unhappy. It's earning record profits.

But you don't have to stand idly by while oil tycoons get rich on your dime. By finding the small companies Big Oil needs to maximize its returns, you can be one of the few who can actually afford to drive a car.

The rich get richer
Take a look at Big Oil's gains in 2005:

These riches are the result of increasing global demand for oil and disruptions caused by hurricanes and war. And prices aren't coming down. Demand in the United States, and in growing economies such as China and India, is going nowhere but up. Exxon estimates that the world's energy needs will be 50% greater in 2030. The partisan standstill in Washington simply doesn't stand a chance of reducing prices.

So we're stuck, right? Wrong.

Big Oil needs you
Sustained high oil prices make it extremely rewarding for oil companies to get the most out of their wells and reserves. Moreover, high prices make it economically feasible for oil companies to invest in new technologies that can better map reserves and find new places for exploration. These technologies include onshore and offshore seismic data acquisition services, reservoir monitoring, and thermal imaging. Big players in this industry include Halliburton and Schlumberger. But they don't always have the best technology.

That's where you come in.

Small wonders
As Clay Christensen noted in The Innovator's Dilemma, small companies are much better than large companies at developing new process technologies. That's because it's easier for them to justify investment in small markets early on -- when investment is most critical. Investors in these small companies -- if or when the innovation bears fruit -- are then treated to incredible gains, since the giants need to either hire or acquire the small firm in order to remain on top. For an example, just remember how well early investors in PayPal did when eBay snapped up the company and its transaction technology back in 2002.

The same phenomenon is occurring in the oil industry today. Several tiny companies are signing big contracts to help Big Oil increase production from existing wells and identify promising new reserves. After all, one of the most costly blunders an oil company can make is to drill a dry well. These contracts have the potential to turn these tiny companies into much larger players -- earning early investors great returns along the way.

Motley Fool Hidden Gems analyst Bill Mann believes he's already identified one innovative oil services company for subscribers, and in today's brand-new issue, he believes he's found another. To read his research and specific company recommendations, click here and be our guest at the service free for 30 days.

The Foolish bottom line
Integrated oil companies are earning mind-blowing amounts of money and should provide solid returns for long-term investors. Yet the best investments should be in the tiny innovators that Big Oil needs to keep profits growing. That's how innovation has always worked in the market.

Tim Hanson does not own shares of any company mentioned. eBay is a Motley Fool Stock Advisor recommendation. No Fool is too cool for disclosure ... and Tim's pretty darn cool.