Crude oil prices have been stabilizing since the beginning of 2019 buoyed by the decision of OPEC and Russia-led oil exporters to cut production levels and supply related problems in Iran and Venezuela.
Additionally, any positive development in the ongoing trade tensions between the United States and China will be a major boost to oil prices. At this stage, it will be prudent to invest in oil stocks with a favorable Zacks Rank.
Oil Prices Near Three-Month High
On Feb 15, the U.S. benchmark West Texas Intermediate (WTI) crude gained $1.18 or 2.2% to close at $55.59 a barrel on the New York Mercantile Exchange. The global benchmark Brent crude rose $1.68 or 2.6% to $66.25 a barrel on ICE Futures Europe.
Both WTI and Brent saw the highest price finish for a front-month contract since Nov 19, 2018. For the week ended Feb 15, WTI price increased 5.4% and Brent price jumped by 6.7%. Year to date, WTI is up 25.2% while Brent surged 28.3%.
On Feb 14, Energy Intelligence reported that Saudi Aramco stopped oil production for that week at Safaniyah, the world's largest offshore oilfield. An important factor for oil price will be the timing of restricted output from this oilfield. However, on Feb 15, Baker Hughes reported that the number of active U.S. rigs drilling for oil increased by 3 to 857 for that week.
OPEC Production Cut Squeeze Supplies
The OPEC and Russia-led oil exporters have decided to cut crude oil supplies by 1.2 million barrels per day (bpd) in 2019. This massive cut aided in stabilization of oil prices. In December 2018, oil supplies from OPEC nations plunged by 751,000 bpd to nearly 31.6 million bpd.
Further, in January, OPEC’s crude production decreased by nearly 800,000 bpd to an average of 30.81 million bpd. Majority of supply cut resulted from Saudi Arabia’s reduction of crude oil production by 400,000 bpd to an average of 10.24 million bpd in January.
Moreover, data intelligence firm Kepler reported that Saudi Arabia’s seaborne crude exports in the first half of February came in at 6.204 million bpd. This figure reflects a reduction of 1.342 million bpd from January and a decline of 0.91 million bpd year over year.
Additionally, Saudi Arabia’s oil minister Khalid al-Falih recently said that the country may consider trimming oil supplies by an another 500,000 bpd to reduce production level at 9.8 million bpd in March.
Impact of Venezuela & Iran Export Cuts Linger
On Jan 28, 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 owing to lack of modernization of oil plants. Notably, Venezuela is a major crude supplier to U.S. refineries.
The sanctions will block diversion of Venezuelan oil assets worth $7 billion by the country’s sitting President Maduro. The United States will continue to support Venezuela’s Interim President Juan Guaidó.
Meanwhile, oil export dropped by 159,000 bpd to just under 2.8 million bpd in Iran owing to the imposition of U.S. sanctions. Notably, Iran is a major supplier of large Asian countries, such as China and India.
Our Top Picks
Crude oil prices are likely to remain northbound in the near term. Consequently, investment in oil stocks will be lucrative. We narrowed down our search to five such stock each carrying a Zacks Rank #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 picks in the last three months.
Jones Energy Inc. JONE is an independent oil and gas company, engaged in the acquisition, exploration, development, and production of oil and natural gas properties in the mid-continent United States. The company has expected earnings growth of 19% for current year. The Zacks Consensus Estimate for the current year has improved by 3.2% over the last 60 days.
Par Pacific Holdings Inc. PARR owns, manages, and maintains interests in energy and infrastructure businesses. It operates in three segments: Refining, Retail, and Logistics. The company has expected earnings growth of 56.6% for current year. The Zacks Consensus Estimate for the current year has improved by 29.6% over the last 60 days.
Phillips 66 Partners LP PSXP owns, operates, develops, and acquires crude oil, refined petroleum products and natural gas liquids pipelines, terminals, other transportation and midstream assets. The company has expected earnings growth of 5.3% for current year. The Zacks Consensus Estimate for the current year has improved by 5.5% over the last 60 days.
Ultrapar Participaçoes S.A. UGP engages in gas distribution, fuel distribution, chemicals, storage and drugstores businesses in Brazil, Uruguay, United Stated, Venezuela and Mexico. The company has expected earnings growth of 18.6% for current year. The Zacks Consensus Estimate for the current year has improved by 6.1% over the last 60 days.
Sunoco LP SUN together with its subsidiaries engages in the wholesale distribution and retail sale of motor fuels primarily in the United States. The company has expected earnings growth of 71.9% for current year. The Zacks Consensus Estimate for the current year has improved by 0.8% over the last 60 days.
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