Oil price has been improving of late but not all problems are over for the sector as Iran continues to produce and export record levels of crude. Notably, the country started oil production with a renewed zest after bans were lifted from the country following the historic nuclear deal last year. The excess oil output is adding to the already oversupplied commodity market, delaying the crude price balancing process.
However, there seems an uncertainty on oil exports from the country after the surprise victory of Republican Donald Trump. In the very words of the 45th President of the U.S., his “No 1 priority is to dismantle the disastrous deal with Iran.” If the U.S. manages to come out of the nuke deal, the Middle Eastern nation might be compelled to reduce crude export. However, the entire matter remains shrouded in uncertainty at the moment.
In this article, let’s focus on oil stocks that are likely to benefit if oil export from Iran is curtailed.
Iran Nuke Deal at a Glance
Earlier Iran was suspected of having nuclear facilities and the country was accused of continuing the development of nuclear activities despite opposition from other countries. In order to curb such activities, the United Nations imposed bans – primarily on oil operations, financial transactions, and sales of weapons – on Iran in 2006. Soon after, the U.S and European Union (EU) followed suit and imposed restrictions on the nation. These incidents not only severely affected the Iranian economy, but also embittered relations between Iran and the superpowers of the world.
After a decade long conflict, a deal was ultimately reached between Iran and the superpowers – U.S., Russia, Britain, Germany, France, China, and the EU – on Jul 14, 2015 in Vienna. The historic nuke deal was inked as the best possible assurance from Iran that it will stay away from nuclear weapons production. Tehran, in particular, agreed to significantly diminish the number of centrifuges at the Natanz uranium unit. The country also agreed that it will not build any reactors over the coming 15 years.
After it was confirmed that Iran has agreed to the aforesaid deal, all other bans of the nation were lifted. Eventually, Iran started exporting oil to the world.
Nuke Deal Led Iran to Exporting Oil Again
According to Iranian government, the country has the fourth-largest proven oil reserve in the world. Hence, it goes without saying that Iran welcomed the opportunity to return to the oil market at full capacity after all bans were lifted. Per the survey conducted by Bloomberg, Iran exported 2.4 (MMB/D) of crude in Oct 2016, which is the highest amount to be exported since 2011.
Why is Trump Against the Nuke Deal?
During his election campaign, the 45th President of the U.S. had referred to the Iranian nuke deal as one of the worst accords ever inked by the U.S.
Given Trump’s vehement opposition of the nuke deal, it will not be surprising if the U.S. opts out of the accord once the new President assumes office on Jan 2017. Interestingly, Trump’s views about the deal cannot be neglected as the agreement merely slowed the progress of Iran toward developing a nuclear arsenal.
Is it Favorable For Energy Players?
Decline in Iran’s crude export is likely to favorably impact oil price as lower output is undoubtedly a positive for the oversupplied market. As per a list of crude producing countries – according to The World Factbook and other Sources – Iran ranked fourth in the world in terms of oil exports.
We note that this will be a positive development for oil exploration and production players as these companies will be able to sell the commodity – that has been persistently weak – at higher prices.
5 Safe Bets
Now we can employ our proprietary screening criteria to sort out best oil exploration players – with a Zacks Rank #1 (Strong Buy) or #2 (Buy) – that might perform well following improved oil prices.
Diamondback Energy Inc. FANG, headquartered in Midland, TX is engaged in activities like exploitation and production of oil and gas from areas like Permian Basin in West Texas.
The company, which sports a Zacks Rank #1, managed to beat the Zacks Consensus Estimate in each of the last four quarters with an average beat of 74.13%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Midland, TX-based Concho Resources Inc. CXO is also involved in exploitation and production of oil and gas resources in the U.S.
The Zacks Rank #2 (Buy) company posted an average positive earnings surprise of 111.67% over the last four quarters.
Newfield Exploration Co. NFX, based in Woodlands, TX, is an independent energy company engaged in the exploration and production (E&P) of crude oil and natural gas.
The company has a Zacks Rank #2. It posted an average positive earnings surprise of 754.83% over the last four quarters.
Denver, CO-based SM Energy Company SM, previously known as St. Mary Land & Exploration Company, is an independent oil and gas company engaged in the exploration, exploitation, development, acquisition and production of natural gas and crude oil in North America.
The Zacks Rank #2 company posted an average positive earnings surprise of 6.88% over the last four quarters.
Matador Resources Company MTDR, headquartered in Dallas, TX, is also an upstream energy company that is involved in activities like exploration and development of oil and gas resources in the U.S.
The company carries a Zacks Rank #2. It managed to beat the Zacks Consensus Estimate in each of the last four quarters with an average beat of 250.51%.
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