Houston American Energy Corp. (NYSE: HUSA) is trending again after growing interest in its Colombia project. With HUSA shares up more than 30% today, investors are taking the news positively.

Still, this isn’t the first time HUSA stock has exploded. In March, for example, HUSA’s stock price soared more than 1,000% in three trading days.

Although the last run ended with HUSA shares halting in a circuit breaker drop, this time may be different. On the one hand, in March, stock prices rose, mainly due to the rapid rise in oil prices.

As oil prices approach $120 again, will we see US shares of Houston hit a 52-week high above $17 per share? At $5 per share, that would give traders an additional 240%. Find out what to expect from HUSA stocks as oil prices continue to climb.

Why is HUSA sourcing today?

Although the most obvious reason for the surge in HUSA shares today is the press release, several factors are pushing stock prices higher.

  1. Growing interest in the Colombian project (see below).
  2. EU agrees ‘partial ban’ on Russian oil, leading to record UK gas prices
  3. Gazprom, the world’s largest natural gas company, is cutting supplies to several European countries.
  4. Finally, the rise in short-term interest rates is most likely fueling the recovery.

On the one hand, the press release triggered a catalyst today as the company announced it was buying an additional stake in Hupecol Meta, LLC. The news is important because Hupecol holds block CPO-11 in the Llanos Basin in Colombia.

In other words, Houston American has a larger stake in the project, which means higher potential profits. According to the SEC report, Hupecol owns 639,405 gross acres in Colombia (Block CPO-11).

So far, the land includes the 69,128-acre Venus exploration, which Hupecol operates entirely. Meanwhile, 570,000 acres are 50% entrusted to another gas company. Yet the terrain also presents multiple drilling prospects.

Finally, the filing mentions that drilling is underway at Venus Exploration, Houston’s first US well in the area. So, with gas and oil prices soaring, you can see why investors are taking the news in a positive light. At the same time, as countries seek to reduce their dependence on Russian oil, other companies will have to step in and fill the supply gap.

What does Houston American Energy do?

Houston American Energy is an oil and gas exploration and production (E&P) company. To clarify, oil and gas companies are often divided into three groups: upstream, downstream or midstream.

Upstream companies drill oil and extract it from the earth, also known as E&P. Then, the intermediary companies transport the resources. And finally, downstream involves refining and selling the product.

However, Houston American is unique in the way it structures its business. Instead of assuming all the risk of drilling, it seeks to form partnerships and joint ventures. As a result, HUSA shares can spread costs while reducing risk. Prior to the pandemic, the E&P industry was under severe pressure as low oil prices and weak demand dried up any drilling activity.

Even when the pandemic hit, demand for oil still plummeted, driving more than 100 oil and gas companies out of business. Conversely, oil is in high demand and supply is hard to find now. Consequently, companies are increasing their drilling activities, to the benefit of E&P companies.

Does the stock HUSA have more gas in the tank?

The last time HUSA stock rebounded, it gained over 1,000%. Although in March the volume came much faster. For example, on March 7, the daily volume reached nearly 200 million.

In comparison, the volume is currently around 70 million. Additionally, oil prices soared more than $130 on the same day as investors assessed a US embargo on Russian oil. With a new oil embargo from the UK this time, will it be enough to push prices even higher?

For one thing, the deal is not a total oil ban. Instead, he plans to ban Russian oil from the sea, which accounts for about 2/3 of total imports.

Oil from pipelines is still fair game to please all EU members without driving energy costs out of control. Nevertheless, EU leaders agree to ban 90% of Russian oil imports by the end of 2022.

If the deal goes through, it will create a large supply shortfall, driving up oil prices even further. At the same time, Houston American is increasing its drilling capacity at the right time.

Today, leaders are meeting to iron out the details, but oil is already trending higher. So far, HUSA stock has been highly correlated when oil prices soar. Look for upward moves in Oil for the next HUSA stock market rally.

HUSA Stock Analysis

Ever since hitting an ATH above $16 per share, HUSA stocks have been in a relentless downward trend. After hitting a low of around $2.85, HUSA stock rebounded to higher relative volume (9.4 million), showing interest.

On the daily chart, HUSA shares are showing a bearish exit. The breakout could be partly due to a rally running out of fuel. Weak floating stocks such as HUSA are particularly vulnerable to short rallies.

According to Fintel data, HUSA stock has a short interest of 11%. Like today’s press release, short sellers (borrowers) can rush to cover their position when a catalyst occurs. As a result, stocks can be more explosive as buyers rush.

On top of that, Houston American has a low float, around 9 million publicly available shares. With that in mind, along with shorts hedging and buyer intervention, it can create an imbalanced supply and demand.

At the same time, weak floating stocks can be difficult to sell. If everyone is buying, who is left to buy? This is a question to be asked for the future.

Inventory forecast and follow-up

Going forward, HUSA stock should continue to track oil prices. The first time oil prices soared, HUSA stock rallied. As the EU plans to phase out Russian oil, oil prices are on the rise again.

As a low float oil stock, it is easy for traders to target, especially when there is a news release. Again, gas and oil stocks are far outperforming this year.

To illustrate, the SPDR S&P Oil & Gas E&P ETF (NYSE: XOP) is up 53%. In comparison, the SPDR S&P 500 ETF (NYSE:SPY) is down 13%. With this in mind, HUSA stocks have more leeway.

However, there is also the risk of not being able to sell weak floating stocks. So, for short-term traders, HUSA stocks can have a risk-reward setup. But keep in mind, it’s a high risk. For long-term investors, you’re probably better off looking elsewhere for energy companies to invest in this year.