On Jul 2, OPEC decided to extend the existing production cuts till March 2020. In doing so, the oil cartel successfully tided over internal differences, agreeing instead to reaffirm measures that supported oil prices in the recent past. Surging U.S. shale output and global economic sluggishness have forced the production bloc to renew such measures several times now.
However, only a lasting U.S.-China trade deal can provide oil with sufficient upside in the second half of the year. Last week, both sides made major concessions, declaring a truce. Notably, Trump agreed to ease restrictions on Huawei, gladdening investors.
A near-term rate, which looks increasingly likely, would also support higher levels of demand. This is why it still makes sense to bet on select oil stocks at this time.
OPEC Extends Production Controls
Even though the core group has decided to provide an extension to production controls, the deal still needs approval from non-member countries. However, Saudi Energy Minister Khalid al-Falih said on Jul 2 that he was sure these countries, particularly Russia, would agree to the extension.
Currently, production controls stand at around 1.2 million barrels per day. A major factor for enforcing such controls has been the jump in U.S. oil production, particularly from shale-related sources.
However, al-Falih thinks, “U.S. shale will peak and the decline like every other basin in history” over time. And till then such measures would be “prudent for us that have a lot at stake” as well as for those concerned about the global economy, he feels.
Trade Truce, Rate Cuts Key to Upside in 2H19
Despite the extension of production controls, the future of oil prices will largely be determined by trade relations between the United States and China. According to Energy Aspects’ chief oil analyst Amrita Sen, the price outlook will largely be guided by the outcome of the next round of U.S.-China talks.
Speaking to CNBC on Tuesday, Sen said that a lot depends on a U.S.-China trade deal since global demand has declined considerably. But she thinks that there “will be some momentum to solve some of these trade wars,” probably alluding to the run-up to the U.S. presidential elections. Trump would want to do little to roil markets and the economy at this point.
Another factor potentially creating upside for oil prices for the rest of the year is the increasing likelihood of a near-term rate cut. With the Federal Reserve intent on fashioning policy, which would support America’s growth momentum, oil market demand could improve in the near future, thinks Sen.
OPEC’s decision to extend production controls until early next year will go a long way in supporting oil prices in the near future. Upside potential has also been improved by the rising likelihood of better U.S.-China trade relations, especially in the run-up to U.S. presidential elections.
A near-term rate cut by the Federal Reserve would also go a long way in supporting oil market demand. This is why it remains prudent to invest in oil stocks. However, picking winning stocks may be difficult.
This is where our VGM Score comes in. 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 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 good VGM Score. You can see the complete list of today’s Zacks #1 Rank stocks here.
Oasis Midstream Partners LP OMP is a master limited partnership company which owns, develops, operates and acquires a diversified portfolio of midstream assets primarily in North America.
Oasis Midstream Partners has a VGM Score of A. The company’s projected growth rate for the current year is 79.1%. The Zacks Consensus Estimate for the current year has improved by 9.4% over the past 30 days.
Plains GP Holdings, L.P. PAGP is an owner and operator of midstream energy infrastructure in Canada and the United States.
Plains GP Holdings has a VGM Score of A. The Zacks Consensus Estimate for the current year has improved by 23% over the past 30 days.
Calumet Specialty Products Partners, L.P. CLMT is a leading independent producer of high-quality, specialty hydrocarbon products in North America.
Calumet has a VGM Score of B. The company’s projected growth rate for the current year is 13.2%. The Zacks Consensus Estimate for the current year has improved by 11.5% over the past 60 days.
RGC Resources, Inc. RGCO and its subsidiaries are in the energy services business.
RGC Resources has a VGM Score of B. The company’s projected growth rate for the current year is 11.6%.
This Could Be the Fastest Way to Grow Wealth in 2019
Research indicates one sector is poised to deliver a crop of the best-performing stocks you'll find anywhere in the market. Breaking news in this space frequently creates quick double- and triple-digit profit opportunities.
These companies are changing the world – and owning their stocks could transform your portfolio in 2019 and beyond. Recent trades from this sector have generated +98%, +119% and +164% gains in as little as 1 month.
Click here to see these breakthrough stocks now >>
Click to get this free report Calumet Specialty Products Partners, L.P. (CLMT) : Free Stock Analysis Report Plains Group Holdings, L.P. (PAGP) : Free Stock Analysis Report RGC Resources Inc. (RGCO) : Free Stock Analysis Report Oasis Midstream Partners LP (OMP) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research