Oil prices climbed earlier this week, anticipating a surge in demand for oil following the pandemic-triggered lockdowns. The greater anticipation comes from two major factors. First, the Organization of the Petroleum Exporting Countries (OPEC) and its allies are virtually meeting this week to decide on easing oil production. Second, positive results linked to a treatment of coronavirus surfaced last week.
In such an optimistic scenario, one should buy stocks of some oil companies, which might take the road north ahead.
Oil Rises Amid Building Hope of Demand Revival
As more optimism built around a recovery in demand for the commodity, global benchmark Brent oil added 89 cents, or 2.1%, at $43.24 a barrel on Jul 12. Also, West Texas Intermediate crude rose 93 cents, or about 2.3%, to settle at $40.55 a barrel on the New York Mercantile Exchange.
Solidifying this anticipated recovery, the OPEC and its allies are set to meet via a web conference this week.
OPEC Aims to Modestly Ease Production Cut
The meeting comes after an alliance of Saudi Arabia-led crude producers pushed OPEC and its allies to consider an oil production boost to meet the expected increasing in demand. The rise in oil production could come in as early as August, amid signs of demand for the commodity going back to normal levels after the lockdowns.
Wednesday’s web conference could be the ground for the group to debate its current and future production volumes.
Saudi Arabia, which is the largest oil exporter in the world, had led a move in April that witnessed the 23-producer group cut its collective output by 9.7 million barrels a day to fight with the reduced demand of oil as countries imposed lockdowns because of the pandemic.
But now, oil producers anticipate a rise in demand for oil. Under a Saudi proposal, the new OPEC Plus coalition would loosen its current curbs by 2 million barrels a day to 7.7 million barrels a day, the delegates said.
Positive Data on Antiviral Drug to Boost Oil Prices
Oil prices got their much-needed boost last week after Gilead Sciences, Inc. (GILD) disclosed findings from a new analysis of the previously disclosed clinical trial data. The study found that Gilead’s experimental therapy remdesivir can lessen the risk of mortality in coronavirus patients by as much as 62%.
What makes this finding highly crucial because it is a comparative, pre-planned analysis of 312 extremely ill participants in a randomized, open-label phase 3 trial and a real-world retrospective cohort of 818 coronavirus patients, who had similar clinical attributes to those included in the trial and were given remdesivir as part of their treatment.
Coronavirus pandemic impacted global demand for oil. But the success of Gilead's experimental therapy, and subsequently a cure for the highly infectious disease would, definitely, get oil demand back to its normal levels.
3 Stocks to Buy
We have, thus, chosen three stocks that are set to benefit from rising oil prices. All these stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). All the stocks belong to the Zacks Oil and Gas - Exploration and Production - United States industry. You can see the complete list of today’s Zacks #1 Rank stocks here.
HighPoint Resources Corporation HPR engages in the exploration, development and production of oil, natural gas and natural gas liquids. The company has an expected earnings growth rate of more than 100% for the next year. The Zacks Consensus Estimate for the company’s current-year earnings has moved 73.9% north in the past 60 days. HighPoint Resources carries a Zacks Rank #1.
Pioneer Natural Resources Company PXD operates as an independent oil and gas exploration and production company. The company has an expected earnings growth rate of 31.3% for the next year. The Zacks Consensus Estimate for the company’s current-year earnings has moved 45.5% north in the past 60 days. Pioneer Natural Resources carries a Zacks Rank #2.
Devon Energy Corporation DVN is an independent energy company. The company has an expected earnings growth rate of 14.8% for the next year. The Zacks Consensus Estimate for the company’s current-year earnings has moved 30.8% north in the past 60 days. Devon Energy carries a Zacks Rank #2.
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