$HUSA Riding An Industry Wide CatalystSaudi Arabia announced another voluntary 1 million barrels per day cut of its oil production which is set to be implemented in July. As a result, oil prices are expected to rise which is promising news for oil producers, like Houston American Energy Corp. (NYSE: HUSA). As the supply of oil decreases, demand for it increases which leads to oil prices surging. Considering that HUSA stock ran each time oil cuts were announced, it could be setting up for a similar run this week – making it one to watch closely.
HUSA Fundamentals
The Russian oil ban caused HUSA stock to run 733% which is not an everyday occurrence in the stock market. HUSA also ran 57% in August 2022 when Saudi Arabia threatened to cut oil production and ran 53.9% at the end of September and the beginning of October 2022 when OPEC cut oil production. Given the history of the stock, HUSA could likely run as a result of this industry-wide catalyst.
There are two basic reasons for these runs. The first is simply the law of supply and demand since oil cuts slash the supply of oil which in turn results in soaring demand – causing higher prices. A perfect example is the most recent Saudi production cut which was likely implemented because oil prices slumped to $70 a barrel. The recent oil cut will likely cause the price of oil to rise and as a result, increase its profitability. The second reason for these runs is HUSA’s popularity as a small-cap oil stock thanks to its low float of 9.8 million which allows it to run quicker on industry-wide catalysts.
The Future of Domestic Oil Production
Domestic Oil production is rising rapidly in the US with the US currently producing around 12.2 million barrels of oil a day – up from last year’s daily average of 11.9 million barrels as shown in the graph below.
Oil and Neoliberal Economics
According to the United States Energy Information Administration (EIA), US oil production is set to increase marginally throughout the coming years. A possible reason for this increase in production is a loss of faith in the neoliberal economic paradigm. These past few years have demonstrated the shortcomings of the current global economic structure. National entities, international organizations, and common folk are starting to resent the underlying transnational dependency that exists between countries.
If these oil cuts continue, then this resentment will grow which might catalyze the US into drafting legislation that would promote oil production in order to increase self-reliability. In this way, companies like HUSA may increase production in order to fill the gaps left due to a lack of supply and soaring demand.
HUSA Financials
According to HUSA’s Q1 2023 report its assets increased QoQ from $4.79 million to $5.69 million which is mostly attributed to its cash balance growing from $4.5 million to $5.2 million. On the other hand, its liabilities decreased from $414 thousand to $401 thousand QoQ.
HUSA’s revenues decreased significantly YoY from $423 thousand to $230 thousand. That said, operating expenses decreased markedly from $589 thousand to $490 thousand YoY, and its net loss of 165 thousand in Q1 2022 became a net income of $104 thousand.
Technical Analysis
HUSA stock is in a neutral trend and is trading in a sideways channel between its support at $2.25, and its resistance at $2.45. Looking at its indicators the stock is above its 200,50, and 21 MAs which are bullish signals. Meanwhile, the RSI is neutral at 56 and the MACD is curling bearishly.
As for the fundamentals, oil stocks are likely going to skyrocket due to Saudi Arabia’s recently announced oil cuts. Given that information, HUSA stock could be on track to soar given its history to run on oil production cuts and low float.
HUSA Forecast
With Saudi Arabia’s recently announced oil production cuts, oil stocks including HUSA stock, could be set to soar this week in tandem with oil prices. Meanwhile, US oil production is increasing substantially which might impact domestic oil producers like HUSA. As is, HUSA could be a profitable play to ride the rising oil prices catalyst considering its extremely low float.
