Yahoo Finance

Oil prices rallied on Thursday after the Energy Information Administration’s (EIA) latest data revealed higher demand for gasoline, owing to late-summer travels by automobile. But The Goldman Sachs Group, Inc. GS dampened the mood with a warning that failure to reduce crude production may drag the commodity prices to as low as $20 a barrel.

Quickly, developments on Capitol Hill drew a silver lining for the commodity. On Thursday, a House Energy and Commerce Committee subcommittee approved a bill to lift the ban and sent the legislation to the full Energy and Commerce committee to vote on it next week.

Rising Inventories

In recent times, U.S. oil production has grown without any restriction. Per EIA, the combined U.S. production of crude oil and lease condensate increased from 5.6 million barrels per day (bbl/d) in 2011 to 8.7 million bbl/d in 2014. Subsequent to that, the agency in its August Short-Term Energy Outlook forecast U.S. crude oil production of 9.4 million bbl/d for 2015.

The most recent EIA report revealed that crude inventories increased by 2.6 million barrels in the week ending Sep 4, 2015. At 458.0 million barrels, U.S. crude oil inventories remain near levels not seen at this time of year in at least the last 80 years.

Concurrently, the latest monthly oil rig count from Baker Hughes Inc. BHI rose by 19 from the previous month to 1,137 in Aug. The rise in rig count also points to more crude production going into the future.

Lifting Export Ban Now Only a Matter of Time

Given the relentless rise in production, lifting the four-decade old ban on U.S. oil exports makes more sense. This mood is now echoing from divergent corners of Capitol Hill. Recently, Republican presidential candidate Marco Rubio made a salient point to lift the ban in his energy policy.

Initiation of exports would greatly help the beleaguered books of independent exploration and production companies. Capitol Hill has lately seen intense lobbying by the industry bigwigs for the lifting of the ban. The names include the likes of ConocoPhillips COP CEO Ryan Lance, Continental Resources Inc.’s CLR Harold Hamm, Hess Corp.’s HES John Hess, and Pioneer Natural Resources Company’s PXD Scott Sheffield.

If the present trend of patronage continues, the House will likely vote in favor of lifting the ban this month. This would certainly bring a fresh lease on life to the energy space, so long embroiled in apprehensions pertaining to the Chinese economy, a volatile economy in Greece and the Eurozone and near-record production from OPEC (mainly in Saudi Arabia and Iraq).

Oil Investors to Profit

A prolonged period of low oil prices has eventually lent quality upstream assets cheap valuations. Therefore, we would like to draw investors’ attention to the neglected upstream space, where most players are trading below par. Smart investors might see this as a window of opportunity.

As such, with oil hovering around the $45-a-barrel level, investors with an appetite for gains should pick the upstream gems out of the rubble with the help of the time-tested Zacks Rank Methodology which arranges stocks from #1 (Strong Buy) to #5 (Strong Sell).

Smart Picks

If the export bill is passed, the biggest gainers would be the West Texas Intermediate (WTI) exposed upstream players. Investors can start accumulating some well-ranked players in the upstream space like Halcón Resources Corporation HK, Seadrill Partners LLC SDLP and Cobalt International Energy, Inc. CIE. Of these, Halcón Resources and Seadrill Partners sport a Zacks Rank #1 (Strong Buy) and Cobalt International holds a Zacks Rank #2 (Buy).