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Oil Hits 6-Month Peak on End to Iran Sanction Waivers: 5 Picks

Swarup Gupta
The Trump administration's decision to end sanction waivers is likely to boost oil prices significantly in the near term.

On Apr 22, oil prices surged to a six-month high after the Trump administration decided to step up the pressure on Iran. Washington announced that the six-month long waiver it had granted to major importers of Iran oil is coming to an end. The decision will hurt Iran’s eight largest buyers, which mostly hail from Asia. China and India, in particular, will feel the pinch of higher crude prices.  

The United States expects Saudi Arabia and the UAE to fill in for the shortfall. However, the jury is still out on whether that will indeed happen. Sanctions on Venezuela have already removed a significant amount of global crude supply and this decision could only push prices higher. Investing in oil stocks looks prudent at this juncture.

Iran Sanction Waivers End

For six months, the United States had issued waivers to eight countries, enabling them to purchase Iranian crude despite the stiff sanctions it had imposed last November. However, the Trump administration had specified that these countries would have to cut down on such purchases with the view to ultimately ending them.

Of these countries, Greece, Italy and Taiwan have stopped importing Iranian crude. However, Japan, South Korea, Taiwan and especially China and India continue to rely on Iranian oil, per The Washington Post. The oil industry at large has been caught off guard since a complete end to waivers was wholly unexpected.

Can Saudi Arabia, UAE Fill in the Gap?

Understandably, WTI crude increased 2.1% to $65.39 per barrel on Monday morning while Brent spiked 2.5% to $73.77. The situation was quite similar on Tuesday morning, with WTI crude hitting $65.95 per barrel, its highest level since October 2018, before slipping to $65.89 by 0239 GMT. This is still 0.5% higher than the last close.

On its part, the Trump administration seemed confident that the UAE and Saudi Arabia would fill in the gap created by an end to Iranian crude supplies. Frank Fannon, assistant secretary of state for energy resources, stated that Saudi Arabia was taking “active steps” to boost global crude supplies.

However, Riyadh remains non-committal on this issue, at least for now. In a statement released on Apr 22, the country’s energy minister Khalid al-Falih said Riyadh is “monitoring the oil market developments” following an end to waivers. He added that the country would work with other major oil producers to create a demand-supply balance.

Banks Believe Supplies Could Tighten

Following the U.S. decision, Barclays BCS issued a note saying the decision had surprised industry incumbents and would “lead to a significant tightening of oil markets.” The bank added that the decision would likely lead to significant upside for its current Brent crude forecast for an average price of $70.

New Zealand’s ANZ bank thinks the end of waivers will “worsen the ongoing supply woes being felt with Venezuelan sanctions, the OPEC supply cut, and intensifying conflict in Libya.”

Other experts think that the United States’ expectation that Saudi Arabia and UAE would raise supplies in response may not ultimately come true. Saudi Arabia may have a completely different view on raising supplies, they feel.

Our Choices

The Trump administration’s decision to end sanction waivers is likely to boost oil prices significantly in the near term. This is especially true because sanctions on Venezuela and OPEC’s existing output controls have already queered the pitch for crude supplies.

Investing in oil stocks makes good sense at this point. However, picking winning stocks may prove to 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 based on a good Zacks Rank and VGM Score of A.

Cabot Oil & Gas Corporation COG is an independent oil and gas exploration company with producing properties mainly in continental United States.

Cabot Oil & Gas has a Zacks Rank #1 (Strong Buy). The company has expected earnings growth of 66.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 5.2% over the past 30 days.

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.

CrossAmerica Partners’ expected earnings growth for the current year is more than 100%. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

ConocoPhillips COP is the largest oil and gas exploration and production player in the world.

ConocoPhillips has a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for the current year has improved by 14.3% over the past 30 days.

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

Enterprise Products Partners has a Zacks Rank #2. The company has expected earnings growth of 2.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 1.7% over the past 30 days.

Talos Energy Inc. TALO engages in exploration, development and production of oil and natural gas properties.

Talos Energy has a Zacks Rank #2. The Zacks Consensus Estimate for the current year has improved by 6.9% over the past 30 days.

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