Oil prices had traded in a range of $65 to $80 a barrel for most of this year. However, crude prices have recently broken out of that range, rallying above $85 a barrel. They could have further to run.

This rebound in oil prices will be a boon for oil stocks. It would allow them to produce a lot more cash flow. Devon Energy (NYSE: DVN) and Pioneer Natural Resources (NYSE: PXD) plan to return most of their windfall to investors through variable dividends and share repurchases, and that means oil bulls should buy their shares hand over fist this month.

Pioneer Natural Resources CEO Scott Sheffield laid out the case for higher crude oil prices on the second-quarter conference call. He pointed out several factors limiting oil supplies in the coming months. The biggest is that under Saudi Arabia's leadership, OPEC has been pulling 1 million barrels per day (BPD) of supply from the market since July. Sheffield expects that group to maintain this cut. Meanwhile, U.S. producers are managing their growth by limiting drilling to produce more free cash. On top of that, the country's emergency stockpile, the Strategic Petroleum Reserve, is at a 40-year low, limiting the country's ability to add supplies to the market. 

Continue reading

Source Fool.com