Oil prices came crashing down Tuesday to trade just above $56 per barrel after the OPEC producers' cartel decided to prolong output cuts at its meeting in Vienna, Austria. WTI crude trading in the United States fell by $2.84 (or roughly 4.8%) to $56.25 - the largest post-OPEC slide since 2014. In Europe, Brent crude prices also fell by about 4.1% to trade at $62.40. While OPEC was widely expected to roll over their production curtailments, oil futures sank to two-week lows on expectations of moderating global demand.
OPEC, Allies Keep Withholding Supply
True to assumptions, OPEC, Russia and other non-member oil countries planned to stick to existing output cuts up to March 2020 instead of letting the pact expire in June. The so-called OPEC+ deal, in place since the start of 2017, is aimed to rein in a global supply overhang and bolster prices. It has been extended a number of times and, as per the latest deal, participants are cutting crude output by 1.2 million barrels per day until the end of the first quarter next year.
Oil Demand Forecasts on the Bearish Side
Despite OPEC's continued production cut pledge, the bearish price action indicates speculators are betting on weak demand. Indeed, the closely watched monthly reports from three key agencies (EIA, OPEC and the IEA) raised concerns about demand, primarily citing a slowing economic backdrop amid the U.S.-China trade spat.
The EIA downgraded its forecast for oil demand growth by 200,000 barrels per day for 2019, while the Paris-based IEA predicts that global consumption will rise by 1.2 million barrels per day this year, 100,000 barrels per day less than previously expected. Meanwhile, OPEC trimmed its expectations for global demand growth to 1.14 million barrels per day for 2019, 70,000 barrels per day less than previously expected.
Energy Investing is Tricky
Considering the opposing forces involved, energy investing is not easy by any means. One thing the oil market downturn has taught investors: nobody has much visibility into the future. So, when you think of something as a clear line of sight one quarter, it can soon be overshadowed by an unforeseen event.
To sum up, even as crude prices continue to remain relatively steady, it is unlikely that the commodity will be heading much higher than $60 per barrel anytime soon. In fact, ever stronger U.S. production and the ongoing trade war could make any oil price strength short-lived.
On the contrary though, the commodity’s rebound since falling to 18-month lows of sub- $43 in December, predictably, has had a positive effect on stocks in the sector. Undoubtedly, still a long way to go, but improving crude prices may have already primed certain oil producers and linked entities for upward momentum.
Follow Expert Opinion
The volatility and uncertainty of oil prices make investment decisions difficult for individuals. With the future direction of the commodity’s movement being anybody's guess, it might be a wise decision to go ahead with stocks preferred by analysts, who have a deep fundamental knowledge and understanding of the industry and its companies.
Stocks with brokerage upgrades are often in for a good day and probably more. Consequently, a downgrade may indicate rough days ahead. Whatever the movement, the market tends to react to it. Also, research shows that stocks with broker rating upgrades outperform those that aren't upgraded and they almost certainly record better results than those stocks that get downgraded.
Here Are the Stocks
With the help of our Zacks Stock Screener, we have selected 5 stocks that have been given Strong Buy/Buy rating by 75% or more brokers. A favorable Zacks Rank #1 (Strong Buy) or 2 (Buy), which justifies a company’s strong fundamentals, further adds value to these stocks. You can see the complete list of today’s Zacks #1 Rank stocks here.
Helix Energy Solutions Group, Inc. HLX is a specialty services provider to offshore energy companies. The stock currently has a Zacks Rank #1.
Enerplus Corporation ERF is a North American energy producer with operations in Western Canada and the U.S. The stock currently has a Zacks Rank #2.
Ring Energy, Inc. REI is a Permian-focused oil and natural gas exploration and production company. The stock currently has a Zacks Rank #2.
Talos Energy Inc. TALO is an upstream energy company with operations in the Gulf of Mexico and in shallow water offshore Mexico. The stock currently has a Zacks Rank #2.
Vermilion Energy Inc. VET is an oil and gas explorer with producing properties in Europe, North America and Australia. The stock currently has a Zacks Rank #2.
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