On Jun 27, U.S. crude price touched their highest level in nearly four years fueled by renewed fear of a global oil shortage in the second half of 2018. Gains were triggered by a report from the U.S. Energy Information Administration (“EIA”) reported which revealed that U.S. crude supplies recorded their largest weekly decline so far this year for the week ended Jun 22.
The global petroleum market is currently suffering from supply shortage while demand remains very firm. Supply crunch has resulted in a surge in crude oil prices both in the United States as well as international market. Crude price is likely to remain robust in the near-term. At this stage, investment in energy stocks engaged primarily in oil explorations will be a lucrative option.
Surge in Oil Prices
On Jun 27, the EIA reported that that U.S. crude supply declined by 9.9 million barrels for the week ended Jun 22. This was the largest weekly decline of U.S. crude supplies so far this year. Per the EIA report, gasoline stockpiles rose by 1.2 million barrels for the week, while distillate stockpiles remained unchanged.
Following the news, West Texas Intermediate (WTI) crude gained $2.23 or 3.2% at $72.76 a barrel on the New York Mercantile Exchange. This was WTI’s highest close since Nov 26, 2014. Brent crude rose $1.31 or 1.7% at $77.62 a barrel on ICE Futures Europe. This was its highest finish since May.
Global Oil Supply Scarcity
The global demand for petroleum remains very firm. In addition to the short supply of the U.S. crude, some other important issues are also responsible for global oil crunch. Per a recent report by The Wall Street Journal, citing a senior U.S. State Department official, the United States wants all countries to stop importing oil from Iran by Nov 4 or face the risk of U.S. sanctions. Notably, last month, the United States walked out of the Iran nuclear pact formed in 2015.
Moreover, Venezuela is plagued with economic instability, massive debt load, unrest in the workforce and hyperinflation. These factors are likely to take severe toll on the country’s oil production till the end of 2018. Meanwhile, problems have flared up in Libya. Reuters reported that eastern Libyan commander Khalifa Haftar’s forces have handed control of oil ports to a National Oil Corporation (“NOC”) based in the east. However, internationally recognized NOC in Tripoli has dismissed the move as illegal.
Meanwhile, 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. However, Saudi Arabia already signaled that the country is not confident about ramping up oil production rapidly to replace a shortfall. (Read More: U.S. Crude Crosses $70 on Supply Fears: 5 Top-Ranked Picks)
Our Top Picks
Strong international demand for crude oil, tight global oil inventories and stabilization of oil production level will boost 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) or 2 (Buy) and a VGM Score of A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below depicts price performance of our five picks in the last three months.
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Chevron Corp. CVX explores, produces and transports crude oil and natural gas, refines, markets and distributes transportation fuels and lubricants. The stock has a Zacks Rank #1 and a VGM Score of A. It has expected earnings growth of 130.3% for the current year. The Zacks Consensus Estimate for the current year has improved by 10.4% over the last 30 days.
Parsley Energy Inc. PE is an independent oil and natural gas company. It is focused on the acquisition, development, and exploitation of unconventional oil and natural gas reserves in the Permian Basin. The stock has a Zacks Rank #2 and a VGM Score of A. It has expected earnings growth of 146.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 6.9% over the last 30 days.
Whiting Petroleum Corp. WLL is an independent oil and gas company that acquires, develops and explores for crude oil, natural gas and natural gas liquids primarily in the Permian Basin regions of the United States. The stock has a Zacks Rank #1 and a VGM Score of B. It has expected earnings growth of 317.6% for the current year. The Zacks Consensus Estimate for the current year has improved by 1.4% over the last 30 days.
Eni S.p.A. E explores, produces, refines, transports and markets natural gas, oil and chemicals. The stock has a Zacks Rank #1 and a VGM Score of A. It has expected earnings growth of 94% for the current year. The Zacks Consensus Estimate for the current year has improved by 10.2% over the last 30 days.
Anadarko Petroleum Corp. APC is one of the world's largest independent oil and gas exploration and production companies. Majority of the company's total proved reserves are located in the United States. The stock has a Zacks Rank #2 and a VGM Score of A. It has expected earnings growth of 251% for the current year. The Zacks Consensus Estimate for the current year has improved by 7.2% over the last 30 days.
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