U.S. Markets closed

Is Crude Oil Heading for the Best Quarter in a Decade? 5 Picks

Nalak Das

Crude oil prices, which plunged in the fourth quarter of 2018, rebounded significantly in the first quarter of 2019. At present, oil prices are nearing their 4-month high level. Oil prices are poised to record the best quarterly gain since 2009 and best first quarter gain since 2002.

The decision taken by OPEC and Russia-led oil exporters to cut production levels and supply-related problems in Iran and Venezuela led to the oil price recovery. Moreover, despite concerns about global economic slowdown, demand for crude oil is likely to remain firm in the near term.

Oil Price Stabilizes in 2019

On Mar 26, the U.S. benchmark West Texas Intermediate (WTI) crude gained $1.12 or 1.9% to close at $59.94 a barrel on the New York Mercantile Exchange. The global benchmark Brent crude rose 76 cents or 1.1% to $67.97 a barrel on ICE Futures Europe. These are the highest finishes for both oil prices so far in March. Year to date, both WTI and Bern crude prices are up more than 30%.

On Mar 11, Bank of America Merrill Lynch announced that it estimates the average prices of Brent crude and WTI crude to be $70 and $59 per barrel, respectively, in 2019. In January, a Reuters’ poll had predicted average price per barrel of Brent crude and WTI crude at $74.50 and $67.45, respectively, in 2019.

Supply Cut a Major Driver

OPEC and Russia-led oil exporters decided to cut crude oil supplies by 1.2 million barrels per day (bpd) in 2019. This massive cut aided in the stabilization of oil prices. On Mar 26, Russia’s Energy Minister Alexander Novak confirmed that the country will cut oil production by 228,000 barrels a day by the end of this month.

On Mar 11, per a Reuters report, Saudi Arabia’s energy minister Khalid al-Falih said that the country will keep its oil production below $7 million bpd in April, much lower than Saudi’s previous estimation of 10 million bpd.

On Jan 28, the U.S. government announced sanctions on Venezuela's state-owned oil company, Petroleos de Venezuela SA (PDVSA). Venezuela, once the fourth-largest oil producer in the world, is suffering due to lack of upgrades at oil plants. According to the International Energy Agency (IEA), Venezuela’s crude output is likely to decline from 1.3 million bpd in 2018 to 750,000 bpd in 2019 owing to U.S. sanctions.

Global Demand for Crude Oil Remains Firm

On Mar 11, the IEA projected that global crude oil demand will remain firm at least up to 2024 although the rate of demand growth will decline. By this time, demand for oil will rise by 7.1 million bpd.

Despite a surge in sales of electric cars and massive oil exploration in the United States, demand for oil is expected to rise in the petrochemical industry, especially in plastic industry. Also, growing demand for aviation oil will support crude oil prices.

Moreover, a possible solution to the year-long tariff related conflict between the United States and China will be a major boost for crude oil price as it will reduce the likelihood of a global economic slowdown.

Our Top Picks

Crude oil prices are likely to remain northbound in the near term. Consequently, investment in oil industry-related stocks should be lucrative. We have narrowed down our search to five such firms with a Zacks Rank # 1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows price performance of our five picks year to date.

 

CrossAmerica Partners LP CAPL engages in the wholesale distribution of motor fuels, consisting of gasoline and diesel fuel, and owns and leases real estate used in the retail distribution of motor fuels. It sports a Zacks Rank #1. The company has an expected earnings growth rate of 554.6% for the current year. The Zacks Consensus Estimate for the current year has improved 10.8% over the past 60 days.

NGL Energy Partners LP NGL engages in crude oil logistics, water solutions, liquids, retail propane, and refined products and renewables businesses. It sports a Zacks Rank #1. The company has an expected earnings growth rate of 226.9% for the current year. The Zacks Consensus Estimate for the current year has improved 0.7% over the past 60 days.

Dril-Quip Inc. DRQ designs, manufactures, sells, and services onshore and offshore drilling and production equipment for use in deepwater, harsh environment, and severe service applications worldwide. It carries a Zacks Rank #2. The company has an expected earnings growth rate of 76.2% for the current year. The Zacks Consensus Estimate for the current year has improved 69.4% over the past 60 days.

Cabot Oil & Gas Corp. COG an independent oil and gas company, explores for, exploits, develops, produces, and markets natural gas, oil, and natural gas liquids in the United States. It carries a Zacks Rank #2. The company has an expected earnings growth rate of 63.9% for the current year. The Zacks Consensus Estimate for the current year has improved 7.1% over the past 60 days.

Helmerich & Payne Inc. HP primarily engages in drilling oil and gas wells for exploration and production companies. It has a Zacks Rank #2. The company has an expected earnings growth rate of 1,107.4% for the current year. The Zacks Consensus Estimate for the current year has improved 32.3% over the past 60 days.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.

This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.

See their latest picks free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
NGL Energy Partners LP (NGL) : Free Stock Analysis Report
 
Dril-Quip, Inc. (DRQ) : Free Stock Analysis Report
 
CrossAmerica Partners LP (CAPL) : Free Stock Analysis Report
 
Helmerich & Payne, Inc. (HP) : Free Stock Analysis Report
 
Cabot Oil & Gas Corporation (COG) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research