Energy was a major topic of debate among Republican presidential contenders who were hoping to set a contrast between their proposed policies and the ones currently in place under the Obama administration. Most accused the White House of derailing domestic drilling activity by making the permitting process too difficult and environmental regulations too onerous.

Despite that criticism, the US is producing more oil now than it has in over a decade. According to data from the Energy Information Administration, January’s monthly production number was at its highest level since August 1998. And last year, annual production hit its highest level in eight years.

Although production levels are on the rise, crude prices keep climbing even higher.

The high price of oil has been partially driven by tensions in the Middle East resulting from Iran’s nuclear ambitions. Iran’s intransigence has raised worries that Israel could decide to unilaterally strike Iranian nuclear sites, particularly since Israeli Defense Minister Ehud Barak recently said that talks with Iran were a waste of time.

These concerns prompted the US Department of Defense to deploy a second aircraft carrier to the Persian Gulf last week–the USS Enterprise–to join the USS Abraham Lincoln. When the USS Enterprise arrives, it will mark only the fourth time in the past 10 years that the US has had two aircraft carriers operating simultaneously in the Persian Gulf. While US government officials say this is merely a routine deployment, it’s pretty clear that the government is projecting a show of force to ensure the Straits of Hormuz remain open.

Another factor helping to keep oil prices high is the fact that global supply is quite constrained at the moment. In recent months, there have been supply disruptions from Africa and the Middle East to the United Kingdom. Because of these disruptions, the International Energy Agency says there is now less than 3 million barrels per day of spare production capacity. That’s the lowest level of spare capacity since 2008, which could lead to supply shocks if further disruptions occur, particularly as tighter oil embargos on Iran take effect in the coming months. In an effort to compensate, Saudi Arabia has begun pumping oil at its highest rate in almost 30 years.

While domestic energy policy is a popular topic of debate among politicians, I wouldn’t bet against the domestic energy industry. Further development of domestic resources is our best insurance policy against externally driven shocks over which we have little control.

Fortunately, the Obama administration has taken steps to speed along the permitting process for new oil and gas wells.

Earlier this month, it was announced that a new automated permitting process is being implemented to reduce waiting times. This new permitting process will reduce the average time required to secure a permit for onshore drilling from close to a year to just 60 days. While that doesn’t actually open more federal land to drilling activity, it will help create some additional supply by allowing producers to drill state and private land more quickly.

There are a couple of ways to play the trend toward greater US reliance on domestic oil supplies.

The most obvious is a bet on oil and gas exploration and production (E&P) outfits. iShares S&P Oil & Gas Exploration and Production ETF (NYSE: XOP) holds only US-based E&P companies. The 73 companies in the fund’s portfolio, including names such as Comstock Resources (NYSE: CRK) and Exxon Mobil (NYSE: XOM), are those that have most participated in the trends I’ve already outlined.

The one drawback is that these are high-volatility names. Despite being domiciled in the US, these firms have heavy exposure to foreign markets and aren’t immune to international problems.

ALPS Alerian MLP ETF (NYSE: AMLP) offers a lower-volatility play on domestic energy trends. The fund holds a basket of midstream master limited partnerships (MLP) that are the backbone of America’s energy transportation and storage network. They own the pipelines that move oil and natural gas, as well as the storage facilities at distribution endpoints.

Midstream MLPs are basically the toll takers of the energy industry; they get paid based on the volume of commodity product moved, rather than the price of the commodity produced. That makes for smoother revenue, while providing exposure to the energy production and demand story. The exchange-traded fund (ETF) also offers a substantial 6 percent dividend yield.

What’s New

Another high-yield bond fund was launched last week. Market Vectors Fallen Angel High Yield Bond ETF (NYSE: ANGL) is unique in that it focuses on fallen angels, a term that refers to debt that was originally rated investment grade at issuance but was later cut to a junk rating.

Fallen angels can be extremely profitable for investors, and according to Van Eck, they have historically outperformed other high-yield debt. That’s probably due to the fact that fallen angels tend to be better established companies that have fallen on hard times, rather than purely speculative plays.

The fund tracks the Bank of America Merrill Lynch US Fallen Angel High Yield Index which is comprised of about 400 individual issues. The index has an average duration of 5.5 years and an average coupon of about 7 percent.

The fund charges an annual expense ratio of 0.40 percent.

The second new launch this week comes from United States Commodity Funds, which is perhaps best known for its United States Oil Fund LP (NYSE: USO).

Its new United States Agricultural Index Fund (NYSE: USAG) tracks a basket of about 14 commodities and will employ the firm’s contango-reduction methodology. The fund’s holdings will be adjusted on a monthly basis depending on market conditions; components that are in contango will be underweighted, while components in backwardation will be overweighted.

The fund charges a 1.4 percent annual expense ratio.

Portfolio Roundup

There was no portfolio-specific news this week.