Well, it finally happened. I’ve been watching oil prices flirt with the $50 mark for some time. On June 7, benchmark West Texas Intermediate (WTI) futures finally pierced through that key psychological level and settled at $50.36 per barrel. That’s the first time oil prices closed above $50 in almost a year.

Prices have since retreated slightly since then to around $48, but it’s still a monster comeback. It was only a few months ago that prices were languishing at $26 per barrel.

#-ad_banner-#Crude oil dominated the headlines when prices were on the way down. But now that the pendulum has turned, the financial media has gone strangely quiet. That’s fine with me. It might allow more time to put additional money to work in this sector while asset prices are still depressed.

Could this rally falter and prices retreat again? Sure. We can’t rule out that possibility. But because the upward surge has been driven by improved fundamentals — not speculators — I don’t think we’ll retest the lows again in this cycle.

North American oil producers have been dialing back their exploration and production budgets for well over a year. That’s just common sense — nobody wants to spend billions hunting for new supplies if they can’t turn a decent profit (let alone break even).

Before the crash, there were more than 2,000 active oil and gas rigs drilling nationwide. That number sank to 1,000 and then 500, before dropping to just 480 in March. That’s the lowest figure ever recorded since record-keeping began in the 1940s.

It took some time, but the effects are starting to show. According to the U.S. Energy Information Administration (EIA), U.S. oil production has dropped to 8.8 million barrels per day — the lowest output in nearly two years. And it’s expected to sink another 600,000 barrels a day next year to 8.2 million per day.

Not long ago, storage hubs were brimming at full capacity. But now, the American Petroleum Institute reports that domestic crude stockpiles were drawn down for the third straight week, a dramatic turnaround.

Elsewhere, natural wildfires have slowed production in Canada. Venezuela is a mess. And rebel fighters have sabotaged oil fields in Nigeria (Africa’s largest producer), causing severe shortages. All of these disruptions have put a big dent in available supplies.

Meanwhile, global oil consumption is moving in the opposite direction, rising by 1.4 million barrels per day during the first quarter. China, in particular, appears to be thirsty once again, importing more oil last month than it has in six years. The combination of lower supply and higher demand is tightening the former glut — and bringing the market closer to equilibrium.

In my premium income newsletter, High-Yield Investing, we hold more than 10% of our portfolio’s assets in midstream energy partnerships that own pipelines, storage tanks and other infrastructure. So this is a welcomed turnaround. Higher prices will stimulate drilling activity, pushing more product through all the veins and arteries.

Keep in mind, these companies don’t actually own any oil — they are just paid to transport it. But since the stocks were punished when crude prices tanked, it only makes sense that they find some relief now that oil has nearly doubled. And each has responded with hefty gains.

I was a staunch defender of these MLPs during the selloff, and I am pleased to see stock prices in this sector coming back in line with underlying cash flows. But it’s not the only group moving higher — nearly all of my portfolio holdings have been gaining ground.

As a long-term investor, I don’t sell stocks very often. But as I recently discussed with my premium High-Yield Investing subscribers, there is a real possibility of a market correction on the horizon. So it seems prudent to lock in some profits.

Remember, I’m not exiting any of these positions right now due to a weakening earnings outlook or any other company-specific problem. I’m just taking a more defensive posture. That strategy includes setting stop-losses on some of our positions.

I hope that we don’t need any of these insurance policies and can continue to ride these stocks to even bigger returns. It doesn’t mean I’ve lost faith in these companies — or their dividend-paying ability. But I have a fixed amount of cash to invest in my portfolio, and am constantly presenting new investment ideas in every issue.

If you own any positions tied to the energy space, you may want to consider doing the same. In any case, deciding whether to cash out gains or let them ride is a good dilemma to have.