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Crude Oil Prices Likely to Remain Stable in 2019: 5 Top Picks

Nalak Das

Crude oil prices plummeted 38% in the fourth quarter of 2018 after hitting a four-year high of $81.20 per barrel on Sep 24, 2018. A massive supply glut and fear of slowing global demand owing to a multitude of issues are primary reasons behind this plunge.

However, crude oil prices received some respite in the form of three primary factors - the decision of OPEC and Russia-led oil exporters to cut production levels, supply related problems in Iran and Venezuela and positive developments on the trade war front. At this stage, it will be prudent to invest in oil stocks with a favorable Zacks Rank.

Crude Oil Prices Likely to Remain Firm in 2019

The U.S. benchmark WTI crude ended 2018 at a price of $44.48 per barrel while the global benchmark Brent crude oil ended 2018 at a price of $51.49. Several oil experts have forecasted that both benchmark prices may move up to 20-30% in 2019.

The U.S. Energy Information Administration has predicted that Brent crude will hover around $61 per barrel in 2019 while WTI crude will be around $54 per barrel. Reuters’ poll has predicted average price per barrel of Brent crude and WTI crude price at $74.50 and $67.45, respectively, in 2019.

Per Brian Youngberg, senior energy analyst at Edward Jones, average Brent price will remain around $66 a barrel while WTI price will remain around $60 per barrel. It is evident from these numbers that the majority of the forecasts are on the higher side.

Trade Truce Between the United States and China

On Dec 1, U.S. President Donald Trump and his Chinese counterpart Xi Jinping reached an initial agreement to find a permanent solution to the trade-related conflict between the two countries. The truce will be valid for the next 90 days during which the two countries will try to solve bilateral trade conflicts.

During Jan 7-8, high level delegations of both the United States and China will meet to discuss a possible trade deal. President Trump also tweeted that he is hopeful of a possible solution to the trade tussle with China. A cease fire between the United States and China regarding trade-related issues has alleviated investors’ concern regarding a global economic slowdown.

Supply Cut on Several Fronts

The OPEC and Russia-led oil exporters have decided to cut crude oil supply by 1.2 million barrels per day (bpd) in 2019. This massive cut will help oil prices to stabilize. In a separate development, Qatar decided to quit OPEC in a bid to focus more on natural gas production than crude oil, indicating lower crude oil supply.

Rachel Notley, premier of Canada’s oil-rich province of Alberta, announced that she will force oil producers to cut production level by 9% in 2019 in order to stop crude oil prices from sliding further. Notably, Canada is the fourth largest oil producer worldwide.  

Fitch Solutions Macro Research Group reported that oil supply from Venezuela will drop a whopping 31.2% in 2019 after falling 29.3% in 2018. Venezuela, once the fourth largest oil producer in the world, is suffering owing to lack of modernization of oil plants.

Our Top Picks

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

The chart below shows price performance of our five peaks in the last three months.

Approach Resources Inc. AREX is an independent energy company focused on the acquisition, exploration, development, and production of unconventional oil and gas reserves in the United States. The company has expected earnings growth rate of 33.3% for the current year. The Zacks Consensus Estimate for the current year has improved 25% over the past 60 days.

Gulfport Energy Corp. GPOR engages in the acquisition, exploration, exploitation, and production of natural gas, crude oil, and natural gas liquids in the United States. The company has expected earnings growth rate of 29.1% for the current year. The Zacks Consensus Estimate for the current year has improved 4.6% over the past 60 days.

CNX Resources Corp. CNX is an independent oil and natural gas company which explores, develops and produces oil and natural gas in the Appalachian Basin. The company has expected earnings growth rate of 706.3% for the current year. The Zacks Consensus Estimate for the current year has improved 9% over the past 60 days.

Bellatrix Exploration Ltd. BXE engages in the acquisition, exploration, development, and production of oil and natural gas reserves in the provinces of Alberta, British Columbia and Saskatchewan in Canada. The company has expected earnings growth rate of 30.7% for the current year. The Zacks Consensus Estimate for the current year has improved 3.1% over the past 60 days.

SilverBow Resources Inc. SBOW is an energy company, engages in the exploration, development, and production of oil and gas from the Eagle Ford Shale in South Texas. The company has expected earnings growth rate of 67.3% for the current year. The Zacks Consensus Estimate for the current year has improved 16.1% over the past 60 days.

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CNX Resources Corporation. (CNX) : Free Stock Analysis Report
 
Bellatrix Exploration Ltd (BXE) : Free Stock Analysis Report
 
Approach Resources Inc. (AREX) : Free Stock Analysis Report
 
Gulfport Energy Corporation (GPOR) : Free Stock Analysis Report
 
SilverBow Resources Inc. (SBOW) : Free Stock Analysis Report
 
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