Crude-oil prices are dropping, and are likely to drop more.

Early this month, the front-month futures contract for West Texas Intermediate crude oil dipped below $90 for the first time since April of last year. North Sea Brent, the European benchmark, is trading near levels not seen since June 2012.

WTI and Brent are the most widely quoted crude prices, and their declines since early summer, which have accelerated in recent weeks, can be traced to rising concerns that global growth is slowing as global production increases. Given that demand is threatened when supply expands, you don’t need to have a PhD in economics to know this will continue to depress crude prices.

Overall, though, Canada’s oil and gas remain valuable, important commodities. But finding new end markets and establishing the infrastructure to deliver output are critical long-term objectives.

Focusing on the six buy-rated names in the CE Portfolio—among the highest-yielding energy producers in the world—is a solid way to generate reliable income and participate in high-potential upside as well.

In the current situation, a major positive factor for Canadian oil and gas producers remains the “differential” between prices for Western Canada Select (WCS) and the major global benchmarks WTI and Brent. The wider the differential, the less Canadian producers get relative to other producers. And that differential is narrowing, which is good for Canadian producers. The current gap between WCS and WTI is $13.20. Less than a year ago, on November 5, 2013, the spread was $42.

And natural gas prices have held up relatively well during this commodity selloff, though the market, anticipating a significant gain in U.S. inventories that would narrow a deficit before the start of winter heating season, sent the commodity tumbling by 2.4% on October 2.

Analysts expected the Energy Information Administration to report that stockpiles climbed by 107 billion cubic feet in the seven days ended September 26, compared with the five-year average weekly increase of 85 billion. Supplies the previous week were 13% below average.

North American production continues at record levels, a much better supply situation than what people feared at the end of last winter. Natural gas for November delivery settled at $4.023 per million British thermal units (MMBtu) on the New York Mercantile Exchange after reaching $4.184, the highest intraday price since July 10. Natural gas futures are down 4.9% this year.

Gas in storage climbed 2.166 trillion cubic feet from an 11-year low in March to 2.988 trillion in the week ended September 19, the biggest increase for the period in EIA data going back to 1994.

The Canadian dollar’s decline has hurt U.S. investors’ Canadian holdings. But one positive consequence of the decline is that Canada-based oil and gas producers’ competitiveness will increase, as their expenses are incurred in loonies.

Prices for their products are benefitting, slowly, from better ways to move them, and that’s narrowing the gap between Canadian energy commodities prices and U.S. and global benchmarks.

Energy producers with strong production-growth profiles and low cost profiles should be particularly well placed to benefit from the weaker loonie.

Opportunities

ARC Resources Ltd. (TSX: ARX, OTC: AETUF), a gas-focused producer, is beating early expectations at its Tower and Sunrise projects, helped by innovative production methods.

Management recently boosted ARC’s 2014 capital expenditure budget by $53.4 million to $868 million, a move that should further boost output growth.

Heavy-crude producer Baytex Energy Corp. (TSX: BTE, NYSE: BTE), a recent addition to the Aggressive Holdings, recently expanded its U.S. shale portfolio to include output from the Eagle Ford formation in Texas, one of the most prolific plays in North America. The Eagle Ford deal boosted Baytex’s production of higher-priced light oil, and it provides exposure to Gulf Coast crude oil markets via existing transportation systems.

On September 30, Crescent Point Energy Corp. (TSX: CPG, NYSE: CPG) closed a $336.9 million acquisition of producing assets and land from beleaguered fellow Aggressive Holding Lightstream Resources Ltd. (TSX: LTS, OTC: LSTMF).

The deal includes high-netback, low-decline conventional oil production of about 3,300 barrels of oil equivalent per day and 76 net sections of land that are contiguous with Crescent Point’s existing land base in southeastern Saskatchewan and Manitoba.

Crescent Point also acquired an additional 44 net sections of undeveloped fee title land, much of which is located in a fairway that management believes holds significant exploratory potential.

Lightstream, meanwhile, is making good progress on its asset-sale program, as management seeks to repair a debt-heavy balance sheet. The trouble is declining oil prices, which exacerbate cash-flow pressures. It’s time to cut losses on Lightstream. Sell.

Enerplus Corp. (TSX: ERF, NYSE: ERF) is a shining example of management making effective use of cash saved from a dividend cut. Since halving its payout to 8 cents per month in June 2012, the company has shored up operations, reduced debt and added high-quality, high-predictability assets.

Peyto Exploration & Development Corp. (TSX: PEY, OTC: PEYUF), probably the lowest-cost natural gas producer in North America, has room to make a profit even if commodity prices sink below USD3 per MMBtu. Peyto’s key competitive advantage is a self-contained structure that unites ownership of land, production and processing assets under its banner.

Vermilion Energy Inc. (TSX: VET, NYSE: VET) remains the most global of Canada’s oil and gas producers, with producing assets in Europe and Australia that avail it of international pricing.

Recent expansion of Canadian operations should help Vermilion benefit from narrowing differentials. The company’s 19% stake in the Corrib gas project offshore of Ireland will drive solid cash-flow growth.

Falling crude prices will have a negative impact on the top line. But a weakening loonie and tightening crude differentials between WCS versus global benchmarks will provide some cushion against a broader decline in commodity prices.

The start of work on the Flanagan South oil pipeline from Illinois to Oklahoma and the reversal of Enbridge Inc.’s (TSX: ENB, NYSE: ENB) Line 9B are near-term factors that are helping ease the differential burden.

And rail is providing significant capacity to get output to market, bridging the gap until the time TransCanada Corp.’s (TSX: TRP, NYSE: TRP) Keystone XL and EnergyEast projects and Kinder Morgan Inc.’s (NYSE: KMI) Trans Mountain expansion enter service.