On Jun 29, oil prices rose for the fourth consecutive day in anticipation of an increase in demand against disruptions in supply. WTI crude jumped almost 1% on Friday to end at $74.15, it highest closing since Nov 2014.
The rise marks robust weekly, monthly, quarterly and half-yearly gains. Oil prices have been increasing after the United States imposed sanctions on Iran to stop exporting oil from that country in order to cut off substantial finances.
A multitude of factors are raising the specter of supply shortages at a time when global demand could rise exponentially. Against this backdrop, it makes sense to bet on select oil stocks likely to deliver strong profits in the second half of 2018.
Trump Further Closes in on Iran
In May, President Donald Trump withdrew from the 2015 Iran nuclear deal and imposed sanctions on that country. This immediately led to fears of a rise in oil price. Imposition of sanctions means Iran could cut down on its oil production thus impacting oil exports.
Moreover, according to reports, the United States is urging other countries to stop importing oil from Iran by Nov 4. This is part of the President’s efforts to isolate Iran economically and politically, per a senior U.S. State Department official.
Big Challenge for Other OPEC Members
The United States’ sanction on Iran comes with expectations that other members of the Organization of the Petroleum Exporting Countries (OPEC) including Russia will make up for the shortage in oil supply. The OPEC members have promised to raise oil production but it is unlikely that they will be able to achieve the supply target.
However, concerns have emerged over Saudi Arabia’s ability to step up production at a pace quick enough to combat supply shortages. And even if Saudi Arabia does pump oil at an all-time high level, it will cross its production quota and place the excess in storage. This in all likelihood will only move oil prices higher.
Libya, Venezuela Crude Supplies Deepen Crisis
United States’ sanctions on Venezuela coupled with that country’s ongoing economic crisis have been the key concerns of late. Venezuela is embroiled in an oil supply crisis and is entering a dangerous new phase. According to reports, Venezuela is shutting oil production to cope with nearly replete terminal shortage that is resulting in a decline in output.
Libya, on the other hand, has added to supply bottlenecks. According to a report from Reuters, forces led by Eastern Libya’s military commander Khalifa Haftar have handed over control of the country’s eastern oil ports to a National Oil Corporation (NOC) based in the east. The internationally recognized NOC has dismissed the move, terming it as illegal.
Multiple supply concerns are serving to boost crude prices at this moment. The supply crisis has been aggravated after the United States recently told that it would sanction those countries that do not reduce their crude imports from Iran to “zero” by Nov 4. This tough stance on Iranian imports could lead to prolonged supply concerns.
Moreover, the situation in Libya and Venezuela remains unpredictable. Meanwhile, questions have been raised on Saudi Arabia’s ability to boost production quickly. Investing in stocks of oil companies looks like a smart option at this point. 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 a good VGM Score.
ConocoPhillips (NYSE:COP) is a major global exploration and production company with operations and activities in 17 countries.
ConocoPhillips has a VGM Score of B. The company’s expected earnings growth rate for the current year is more than 100%.The Zacks Consensus Estimate for the current year has improved 17.8% over the last 60 days.
CNOOC (NYSE:CEO) is a company that engages primarily in the exploration, development and production of crude oil and natural gas offshore China.
CNOOC Limited has a VGM Score of A. The company’s expected earnings growth rate for the current year is more than 100%.The Zacks Consensus Estimate for the current year has improved 22.7% over the last 60 days.
HollyFrontier (NYSE:HFC) is one of the largest independent refiners and marketers of petroleum products in the United States.
HollyFrontier has a VGM Score of A. The company’s projected growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved 31.3% over the last 60 days.
Equinor (NYSE:EQNR) operates as an energy company. It engaged in developing oil, gas, wind and solar energy projects and focuses on offshore operations and exploration services.
Statoil ASA has a VGM Score of A. The company’s expected earnings growth rate for the current year is more than 44.2%. The Zacks Consensus Estimate for the current year has improved 32.7% over the last 60 days.
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