The drawn-out saga of trade war is taking its toll on energy sector. On Jun 11, crude prices plunged in both the United States and International market due to escalating global trade conflicts and some easiness of oil supply. Consequently, both Brent Crude and WTI crude prices declined 6.9% and 5%, respectively.
However, the global demand for petroleum remains firm and is anticipated to grow next year. Meanwhile, global oil production is likely to remain stable in 2018. This will enable the crude price to remain robust in the near term. At this stage, investment in energy stocks engaged primarily in oil explorations will be a lucrative option.
Crude Price Plunge a Temporary Phenomenon
Investors remain worried about a global trade war which is likely to reduce global economic growth depressing the demand for crude oil. Moreover, supply concerns eased as OPEC reported that Saudi Arabia enhanced oil production in June. Further, four Libyan oil ports have returned to normalcy after Tripoli-based National Oil Corp (NOC) lifted ban on February.
Additionally, on Jul 10, U.S. Secretary of State Mike Pompeo stated that Trump administration will consider requests from some countries to be exempted from sanctions that the United States will put into effect on Iran in November.
Meanwhile, the U.S. crude oil inventory dropped significantly by 12.6 million barrels from the previous week, according to the U.S. Energy Information Association (EIA) report for the week ending Jul 6. Moreover, Venezuela is plagued with economic instability and its oil production is not anticipated to reach normalcy till the end of 2018.
Further, on Jun 22, the group comprising of OPEC (Oil and Petroleum Exporting Countries) countries and non-OPEC allies led by Russia decided to raise production quota by 624,000 barrels a day (bpd), far less than their initial demand for 1.5 million bpd.
Demand for Crude Oil Remains Firm
Recently, the OPEC estimated that total world oil consumption is anticipated at 98.85 million bpd in 2018 and is expected to increase to 110 million bpd in 2019. Several industry experts pointed that global oil inventories have already returned to its five-year average. However, the demand for oil remains robust.
Moreover, shortfall from Venezuela and infrastructure bottlenecks in the Permian is likely to result in low production in the United States. This is likely to add to supply woes. In such a situation, OPEC’s decision to increase production by 624,000 bpd will only just compensate the shortage and not result in a production glut.
Additionally, Trump administration has threatened other countries of financial sanctions if they continue to export oil from Iran after Nov 4. Several European oil majors have already started bundling their operations in Iran. This will further intensify oil shortage.
Our Top Picks
Strong international demand for crude oil, tight global oil inventories and stabilization of oil production level will bolster oil price rally in the near term. Consequently it will be a prudent move to invest in good energy stocks. However, picking winning stocks can be a difficult task.
This is where our VGM Score comes in Handy. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select the winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.
We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and a VGM Score of either A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows price performance of our five picks in the last three months.
Chevron Corp. CVX engages in integrated energy, chemicals, and petroleum operations worldwide. It explores, produces and transports crude oil and natural gas; refines, markets and distributes transportation fuels and lubricants. Chevron has a VGM Score of A. The company has expected earnings growth of 130.3% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.5% over the last 30 days.
Comstock Resources Inc. CRK is an independent energy company engaged in the acquisition, development, production and exploration of oil and natural gas properties. Comstock Resources has a VGM Score of A. The company has expected earnings growth of 112.3% for the current year. The Zacks Consensus Estimate for the current year has improved by 17.1% over the last 30 days.
Whiting Petroleum Corp. WLL exploits, develops and explores for crude oil, natural gas and natural gas liquids primarily in the United States. Whiting Petroleum has a VGM Score of B. The company has expected earnings growth of 322.9% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.5% over the last 30 days.
Murphy Oil Corp. MUR operates as an oil and gas exploration and production company worldwide. It explores for and produces crude oil, natural gas, and natural gas liquids. Murphy Oil has a VGM Score of A. The company has expected earnings growth of 1,384.6% for the current year. The Zacks Consensus Estimate for the current year has improved by 12.1% over the last 30 days.
Penn Virginia Corp. PVAC is an oil and gas company. It engaged in exploration, development and production of oil, NGLs and natural gas. Penn Virginia has a VGM Score of B. The company has expected earnings growth of 252.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 14% over the last 30 days.
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