The Energy sector has come a long way from the mid-2014 slump. All of us remember the days when explorers had struggled to survive, primarily relying on debt capital and asset sale. After OPEC members decided to curb production to combat the supply glut, crude prices saw a partial recovery.
On Nov 30, 2017, the OPEC members decided to extend the deal through 2018-end, driving crude prices higher. The average monthly price of West Texas Intermediate (WTI) crude per barrel for the month of January, February and March of 2018 was recorded at $63.70, $62.23 and $62.73, respectively, per the U.S. Energy Information Administration. Notably, the average monthly WTI crude price has never touched $60 since 2015.
The heated-up tensions in the Middle East following the missile attack on Syria and fears stemming from the probable sanctions on Iran and Russia will likely help oil bounce back to the level before August 2014, per media reports. Those were the glorious days for explorers when the commodity was trading above $100.
Details on the Syria Strike
On Apr 14, the United States and its allies Britain and France struck back at Syrian president Bashar al-Assad regime by launching cruise missiles to three areas of Syria. The targeted regions are a research unit on chemical weapons and two military bases. The gunboat and warplane missile attacks by America shows that its prime focus is to prevent Syria from killing local people by chemical weapons.
Per media reports, the suspected chemical attack by Assad claimed 40 lives in the Douma city on Apr 7. Reportedly, the United States and allies fired more than 100 cruise missiles, significantly higher than 59 cruise missiles in 2017.
Should Iran & Russia Worry?
The Syria attack is not going to disrupt crude supply in the global market as the country had stopped exporting the commodity way back in 2011 when the civil wars had started. Syria has been relying on Iranian crude for its regular activities. Per Bloomberg, the Banias terminal of Syria is sourcing roughly 50,000 barrels of oil from Iran every day.
Though crude has moved north following the tensions, the rally can be sustained only if the United States takes strong measures against Iran and Russia for backing Syria’s chemical attack.
It is certain that the missile attack led by the United Sates has sparked off fresh tensions between Tehran and Washington. Meanwhile, investors await the outcome on May 12 when Trump will decide whether the nuclear agreement signed with Iran in 2015 should be renewed. All the sanctions on Iran that included restrictions on export of oil and natural gas were lifted in January 2016 after the country had decided to limit its nuclear activities.
Through 2017, Iran shipped roughly 777 million barrels of oil. Hence, if America decides to re-impose sanctions on Iran, crude price will rally higher.
Also, the Russian market has seen increased volatility after Moscow was slapped with new American sanctions on Apr 6. The United States specially targeted the richest industrialists and key companies. Further, Washington is planning a fresh round of sanctions against Moscow, announced the press secretory of White House. Although nothing has been finalized, it is clear that Trump will take a strong stand against Russian players who reportedly helped Syria carry out the chemical attack.
Since, Russia is one of the largest producers and exporters of crude in the world, any sanction on the country will lift crude price.
In other words, the levying of any sanction on Iran and Russia will possibly solve the problem of oversupply — the prime factor acting against crude over the years.
Energy Stocks to Snap Up
Crude moved north following the Syria attack and there is more room for growth on doubts over sanctions on Iran and Russia. WTI crude is presently trading above the $65-a-barrel psychological mark, significantly higher than the historical lows of February 2016. In fact, an analyst working with energy sector recently said CNBC that the Middle East tensions have intensified to such an extent that oil might even cross the $100-per-barrel level.
The fate of the upstream energy players is positively correlated with oil price. Crude explorers will be able to sell the commodity at higher prices, while more contracts await drillers and oilfield service players.
But, choosing promising oil stocks could be a daunting task. Hence, we have employed our proprietary Stock Screener to zero in on prospective energy stocks with a solid Zacks Rank and other encouraging parameters.
Based in Oklahoma City, Continental Resources, Inc. CLR is the leading producer of crude in the prospective oil plays. The company surpassed the Zacks Consensus Estimate in each of the last two quarters. We also expect the stock to record earnings growth of 376.5% and 11.1% in 2018 and 2019, respectively.
The stock carries a Zacks Rank #2 (Buy).
Stone Energy Corporation SGY, headquartered in Lafayette, LA, is the leading explorer and oil producer in the prospective Gulf of Mexico. The firm beat the Zacks Consensus Estimate in two of the last three quarters.
The Zacks #2 Ranked company’s free cashflow returned to positive in 2017, reflecting the firm’s ability to meet capital expenditure with net core operating cashflows.
Headquartered in Oklahoma City, Mammoth Energy Services, Inc. TUSK primarily assists explorers operating in the onshore resources of North America. The company posted an average positive earnings surprise of 14.7% for the last four quarters. In 2018, the company’s earnings will likely grow 246.5%.
The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Headquartered in El Dorado, AR, Murphy Oil Corporation MUR is primarily involved in exploration and production of oil and gas in te prospective resources, including Eagle Ford shale play. The company managed to beat the Zacks Consensus Estimate in three of the last four quarters, the average positive earnings surprise being 96.3%.
The #2 Ranked firm is expected to record earnings growth of 776.9% and 3.4% in 2018 and 2019, respectively.
Comstock Resources, Inc. CRK, based in Frisco, TX, is an oil and gas explorer. The company surpassed the Zacks Consensus Estimate in each of the prior four quarters, the average earnings surprise being 33.3%. For 2018, the firm with a Zacks Rank of 2 will likely see earnings growth of 99%.
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