Over the weekend, the world’s largest oil processing facility suffered several drone attacks. Yemen’s Houthi rebels claimed responsibility for the incident. As a result, Saudi Arabia shut down nearly half of its total oil production capacity, leading to a subsequent oil price spike.
Prices stabilized on Monday after President Trump declared that U.S. emergency reserves would be used to tackle shortages. But analysts were already saying that the incident had raised the risk premium on oil prices, which are likely to remain higher over the rest of the year. This is why it makes sense to invest in oil stocks right now.
Drone Attack Hits Saudi Output
The attacks occurred on Sep 14 at an oil processing facility at Abqaiq and the Khurais oil field located nearby. Consequently, nearly 5.7 million barrels of daily crude output went offline. This is around 50% of Saudi Arabia’s total output, accounting for more than 5% of total global crude production.
According to CNBC, state-owned Saudi Aramco has 35-40 days of supply to service contractual demand. The company was aiming to restore more than 30% of its output, or around two million barrels, by Monday. Meanwhile, Reuters claimed that full capacity would be available only in “weeks, not days.”
Risk Premium for Oil Heightens
On Monday, Brent crude futures surged 19.5% to hit $71.95 per barrel. This is the largest intra-day jump experienced since the 1991 Gulf War. However, Trump’s call to authorize the use of emergency reserves caused prices to moderate later in the day. By 06:33 GMT, Brent crude had gained only 10.1% or $6.09 from its last closing level.
WTI crude surged 15.5% to hit $63.34 at one point. This is the largest intra-day percentage gain recorded since Jun 22, 1998. But by 06:33 GMT, WTI crude had gained 9% or $4.95 from its last close and was hovering around $59.80.
Despite the efforts to restore lost capacity as soon as possible, analysts believe that the drone attack has raised the risk premium for crude oil. Significant pressure has been placed on the supply side. As a result, the prices of oil futures for mid 2020 have risen considerably.
The fresh attack on Saudi oil production facilities has resulted in a major supply shock for the global crude market. Prices of crude are likely to be elevated over the short term though moderation over time looks likely. However, a geopolitical risk premium is likely to be built into oil prices going forward.
This is why investing in oil stocks looks like a smart choice. 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.
CNX Midstream Partners LP CNXM is a master limited partnership which owns, operates and develops natural gas gathering and other midstream energy assets primarily in the Marcellus Shale in Pennsylvania and West Virginia.
CNX Midstream Partners has a VGM Score of A. The company’s projected growth rate for the current year is 7.4%. The Zacks Consensus Estimate for the current year has improved by 1.4% over the past 30 days.
Matrix Service Company MTRX is a provider of engineering, fabrication, infrastructure, construction, and maintenance services to the oil and gas industry.
Matrix Service has a VGM Score of A. The company’s projected growth rate for the current year is 58.4%. The Zacks Consensus Estimate for the current year has improved by 13.5% over the past 30 days.
Ferrellgas Partners FGP is a leading distributor of propane and related equipment in the United States.
Ferrellgas Partners has a VGM Score of B. The Zacks Consensus Estimate for the current year has improved by 23.3% over the past 30 days.
Gran Tierra Energy Inc. GTE is an international oil and gas exploration and production company, headquartered in Calgary, Canada and operating in Colombia.
Gran Tierra Energy has a VGM Score of B. The Zacks Consensus Estimate for the current year has improved by 55.6% over the past 60 days.
Halcon Resources Corporation HKRSQ is an energy company engaged in the acquisition, exploration and development of onshore oil and natural gas properties in the United States.
Halcon Resources has a VGM Score of B.
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