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5 Top Oil Stocks to Buy as Middle East Tensions Escalate

Swarup Gupta

Crude prices settled higher on May 14 following an attack on the facilities of a state-owned oil company in Saudi Arabia. Tensions in the region have flared up ever since relations between Washington and Teheran took a turn for the worse. With a large chunk of the world’s oil supply passing through the region, supply bottlenecks are likely to worsen in the near term.

Prices declined during the early hours of May 15 but Middle East tensions continued to support gains. Meanwhile, OPEC has said that oil demand will exceed expectations as supplies from rival producers decline. Also, market watchers believe that a U.S.-China trade deal is still possible, which will likely bolster demand for crude. This is why it makes sense to pick up select oil stocks.

Saudi Arabia Attacks Boost Prices

On Tuesday, WTI crude increased 1.2% or 74 cents to settle at $61.78 a barrel. Additionally, Brent futures gained 1.4% or $1.01 to end at $71.24 a barrel. The immediate trigger for these gains heightened tensions in the Middle East. According to Riyadh, Yemeni Houthi rebels attacked facilities of state-owned oil major Aramco early on the morning of May 15.

This attack comes a couple of days after four oil tankers were damaged off the coast of the United Arab Emirates. According to Emirate authorities, this was an attack of sabotage. American security agencies think that elements which are allied or closely working with Iran’s government have caused these attacks. On their part, Iranian authorities have denied such claims.

Tensions between the United States and Iran have heightened ever since the Trump administration toughened its sanctions against Teheran. This has hurt Iran’s oil exports and reduced global crude supplies substantially. Nearly 20% of global crude supplies move through the Strait of Hormuz in the Middle East to consumers across the world.  

Trade Deal Hopes, Higher Demand to Boost Prices

Market watchers are still hoping for a U.S.-China trade deal. Both sides have intermittently made encouraging noises, allowing investors to hold out hope for a mutually acceptable solution to the long-running trade dispute. In fact, analysts think that the pain caused by the conflict will force both sides to seal a deal.

Additionally, OPEC said on May 14 that demand for crude would defy estimates in 2019. Supplies from rivals of the oil cartel, such as America’s shale producers, hint at tighter global supplies. The situation will worsen if OPEC refused to raise production further. U.S. sanctions against Iran and Venezuela are already weighing on global crude supplies.

Our Choices

Following Tuesday’s attacks, the situation in the Middle East remains tense. The primary trigger for these disturbances is the Trump administration’s decision to tighten sanctions against Iran. Similar sanctions against Venezuela have also tightened global crude supplies.

Meanwhile, OPEC expects crude demand to exceed expectations this year. Also, market watchers continue to believe that the United States and China will conclude a trade agreement. Adding oil stocks to your portfolio looks prudent. 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. You can see the complete list of today’s Zacks #1 Rank stocks here.

Bonanza Creek Energy, Inc. BCEI is engaged in the acquisition, exploration and development of onshore oil and natural gas properties in the United States. 

Bonanza Creek Energy has a VGM Score of A. The company’s expected earnings growth for the current year is 30.4%. The Zacks Consensus Estimate for the current year has improved by 26.4% over the last 30 days.

Oasis Midstream Partners LP OMP is a master limited partnership company which owns, develops, operate 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 62.1%. The Zacks Consensus Estimate for the current year has improved by 2.5% over the last 30 days. 

Forum Energy Technologies, Inc. FET is a designer, manufacturer and distributor of products to the oil and natural gas industry.

Forum Energy Technologies has a VGM Score of A. The Zacks Consensus Estimate for the current year has improved by 43.8% over the last 30 days.

Enterprise Products Partners L.P. EPD is among the leading midstream energy players in North America.

Enterprise Products Partners has a VGM Score of B. The company’s expected earnings growth for the current year is 7.3%. The Zacks Consensus Estimate for the current year has improved by 4.4% over the last 30 days. 

Independence Contract Drilling, Inc. ICD provides land drilling services for oil and natural gas producers primarily in the United States.

Independence Contract Drilling has a VGM Score of B. The company’s expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 17.4% over the last 30 days. 

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Enterprise Products Partners L.P. (EPD) : Free Stock Analysis Report
Forum Energy Technologies, Inc. (FET) : Free Stock Analysis Report
Independence Contract Drilling, Inc. (ICD) : Free Stock Analysis Report
Bonanza Creek Energy, Inc. (BCEI) : Free Stock Analysis Report
Oasis Midstream Partners LP (OMP) : Free Stock Analysis Report
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