UPDATE DEC. 18: “You missed a big point:” If diversfied Big Oil giants like Exxon or Chevron are only “followers in the U.S. oil renaissance,” there is still opportunity in “Little Oil,” writes Bruce Mitchell, a retired career Shell Oil geologist and gas and oil development manager, with 30 years experience in the Gulf of Mexico, foreign sites, and shale plays like Pennsylvania’s Marcellus and Utica formations before he moved back home to be near family in the Philadelphia area.

While Big Oil diversifies beyond oil exploration and pumps money into refining (where low oil prices equal cheap supplies and fat profit margins), chemicals, marketing (stores, pipelines, trucking, liquified natural gas), “the guys to look at, and invest in, if one is truly convinced that the oil or gas price is going up, are the ‘Little Oil’ companies,” who "get in first into the sweet spots like the Permian Basin in West Texas and are the first to employ new and always cheaper technology. They are ruthless in driving down costs, compared to ‘Big Oil’ which has a lot of overhead. "

He means companies such as Newfield Exploration, Concho Resources, Cimarex Energy -- low and mid-cap companies, with “reasonable” price/earnings ratios in the 15X range," and “very, very focused” on “pure production" in "the very best geologic plays, like the Permian Basin, or the Bakken in North Dakota. In the best areas where they are, one can still make money at a very low oil price ($30/barrel). Of course if the price is a lot higher than that they will do well.

“The big boys like Exxon are in these plays as well, but are so internationally huge that their success, or, often, lack of it, really has no impact on the stock price. And, they tend to be a lot less efficient.”

Mitchell concludes: “I would never only invest in “Little Oil” since they are so tied to the commodity price and I’m not convinced that higher oil prices are sustainable in the long run. A diversified portfolio is always wise. But, to capture short-term profit if one is convinced that in the near term, prices are going higher, “Little Oil” is the way to go. They’re the ones that have made the U.S. the top oil producer.”

SUNDAY DEC. 16, 2018 COLUMN: Driving north from the University of Delaware, we paid $2.02 a gallon for gasoline last weekend down on Kirkwood Highway. Especially once you drive off I-95 or U.S. 202, little Delaware has almost the lowest gas prices in the U.S., averaging more than 50 cents below what Pennsylvanians have been paying this fall, according to AAA and Boston-based GasBuddy.com. New Jersey gas is about halfway between. All three states have oil refineries; the price difference is due largely to gas taxes, which in Delaware are among the nation’s lowest.

Enjoy cheap gas, but don’t expect it to last past next Christmas, the people who study this stuff remind us.

“We are forecasting $75 a barrel” for West Texas Intermediate crude, and $85 for Brent North Sea export oil, by this time next year -- “both up 50 percent from recent levels,” analysts Pavel Molchanov and Muhammed Ghulam wrote in a report last week to investor clients of Raymond James & Associates.

The oil industry sees this backwards from you and me: These people like high prices, which leave room for bigger profit margins and fatter shareholder dividends, and attract big new investments in wells and equipment.

With the U.S. selling more oil to foreigners than it buys abroad, higher oil prices will mean more money flowing into the U.S., though executives, shareholders, contractors, oil-industry workers, and oil-patch landlords are getting most of it, while you and I enjoy less immediate benefits — and pay more, like the rest of the world.

“Despite President Trump’s desire for lower oil prices and his misguided notion that lower oil prices are still good for the U.S. — is he aware that the U.S. is now a net exporter of petroleum? — the fact remains” that a big surge in production and drop in oil prices “always” leads to a reversal — a drop in new drilling, which, combined with lower foreign production and higher foreign demand, will drive prices a lot higher a year from now and later, the Raymond James team says in its report.

Now that oil producers can run wells sideways and have surprised analysts by drawing a lot more oil out of existing wells than previously projected, the U.S. is bringing up more than twice as much oil as the nation produced when former Texas Gov. George W. Bush left the presidency 10 years ago.

We are ahead of our only near rivals — Russia and Saudi Arabia — which are now threatening to cut production to shore up prices, almost like a big company buying back its own shares when it can’t figure anything more productive to do with extra profits.

Falling prices will mean fewer new U.S. wells, then a dip in U.S. production. As oil product demand in India and other growing countries continues to rise, that means U.S. fuel prices will head back up again, all too soon for consumers. And since the U.S. is again the world’s top oil producer — with wells close to U.S. refineries and American consumers — we will feel the next price hikes faster than when we burned foreign oil bought further in advance, the analysts predicted.

Does that at least make it a good time to buy ExxonMobil or Chevron shares? No, Molchanov lamented in a separate report: As the largest traded oil company, Exxon in particular is a “flight-to-safety” oil (and, increasingly, natural-gas) stock that investors buy when the U.S. economy is slow and oil prices are dropping; it has risen more slowly when oil prices head up.

If not Big Oil, what about banks? Their stocks look kind of cheap -- the group trades at a 40 percent discount to other Standard & Poor’s 500 stocks, according to the bank analysts at Keefe, Bruyette & Woods.

But banks are mostly cheap for good reasons, and unlikely to resurrect soon, KBW warned clients in a report Monday.

KBW analysts Brian Kleinhanzl and Michael Brown downgraded big-bank stocks like Bank of America and Morgan Stanley, saying these companies have already adjusted to the Trump tax cuts, and are only likely to have a harder time making profitable loans to business customers in the near future, as the Fed keeps boosting interest rates (KBW was taken by surprise when the Fed raised rates repeatedly this year; they had trusted the Fed to keep dragging its feet on higher rates under Trump, as it did in Barack Obama’s early years.)

The analysts still like JPMorgan, because it keeps investing in financial software (and hiring engineers at its tech centers, like the one in northern Delaware). They’re also up a bit on Wells Fargo, because, while its share price has been beaten down by its own customer-service atrocities and the resulting regulatory scoldings and fines, Wells Fargo still has more than 6,000 neighborhood branch offices, and tens of millions of customers paying relentless interest and fees.

KBW’s regional-bank analysts are also recommending a handful of stocks, including Citizens Financial Group and M&T Bank, which have branches around the Philadelphia area, because they figure these two are set up to attract new business, maybe at the expense of BofA and other larger rivals.

Smaller banks, focused on local customers, should grow faster. But KBW isn’t expecting a lot of fat profits from more mergers, which have already made 8,000 U.S. banks disappear in the last 25 years. Recent bank mergers “have all underperformed,” and that tends to “dampen” merger enthusiasm, wrote KBW analyst Kelly Motta in a separate report.

Up in West Conshohocken, Jim Meyer, chief investment officer at Tower Bridge Advisors, insists he sees opportunity past this winter’s clouds. The market has lately dropped on big-picture fears: threats of slower U.S. and world economic growth, another Federal Reserve rate increase, the U.S.-China trade war, Britain’s disruptive exit from the European Union. “By next spring all these events should be resolved one way or the other," Meyer said. "Markets, being forward looking, face fewer storm clouds by the spring. Brighter days lie ahead.”