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Oil Posts Longest Win Streak in One and a Half Years: 5 Picks

Swarup Gupta

On Jan 8, oil futures closed in the green for the second straight session, marking the longest stretch of gains in nearly 18 months. OPEC’s decision to reduce supplies by 1.2 million barrels per day (bpd) during the first six months of 2019 is the major factor on the supply side boosting prices. The cartel’s oil production declined to a six-month low in December, per a fresh S&P Global Platts survey.

A confluence of factors on the demand side is also lending support to crude prices. This includes Jan 4’s exceptional jobs report, which has reassured investors about the strength of the U.S. economy.

Meanwhile, the Fed Chair struck a dovish tone in his comments last week, seeking to assuage markets. Progress on the trade talks’ front has added to bullish sentiment. This is why it makes sense to bet on oil stocks in 2019.   

Prices Seal 18-Month Long Streak of Gains

On Jan 8, WTI Crude for February delivery increased 2.6% or $1.26 to $49.78 a barrel. This is the highest level recorded for a monthly forward contract since Dec 17, per data from Dow Jones Market.

Significantly, this marks the longest stretch of gains since the eight-session winning streak, which ended on Jul 3, 2017. Meanwhile, March Brent crude advanced 1.4% or $1.39 to $58.72 a barrel. This also marks its longest winning streak in around 18 months.

OPEC’s December Output Plummets, Saudi Arabia Plans Further Cuts

Analysts think that OPEC’s decision to reduce output by 1.2 million barrels per day during the first six months of this year is primary supply side factor fueling the recent crude rally. Meanwhile, a survey released by S&P Global Platts revealed that OPEC output had declined to a six-month low in December.

Additionally, Saudi Arabia is looking to reduce crude exports to nearly 7.1 million bpd by the end of this month, per a Wall Street Journal report released on Jan 7. OPEC officials revealed that this is an attempt to boost prices above the $80 a barrel mark.

Demand-Side Factors Also Likely to Support Prices

Several demand-side factors are also likely to support crude prices in the months ahead. Negotiations between top U.S. and Chinese officials entered its second day on Jan 8. A successful deal would go a long way toward supporting oil prices since China is a major importer of crude.

Meanwhile, Jan 4’s bullish jobs report has dispelled concerns about the U.S. economy. Investors are currently looking to ignore speculation over a near-term recession. The Fed Chair’s recent market-friendly comments have also served to boost optimism.

Our Choices

Crude prices have started the year on a particularly strong note. While analysts attribute the recent rise to OPEC’s fresh production cuts, other factors are also at play. A resolution to the U.S.-China trade conflict could reassure investors about demand in the medium term.

Strong jobs data and the Fed Chair’s recent supportive posture are other demand-side forces supporting crude prices at this point. Taken together, these factors make oil an excellent investment in 2019. However, picking winning stocks may 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.

Unit Corporation UNT, along with its subsidiaries, is a diversified energy company.  

Unit Corp carries a Zacks Rank #1 (Strong Buy) and has a VGM Score of A. The company has expected earnings growth of 84.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 12.1% over the last 30 days.

Black Stone Minerals, L.P. BSM is an owner and manager of oil and natural gas mineral interests in United States.

Black Stone Minerals carries a Zacks Rank #1 and has a VGM Score of B. The company has expected earnings growth of 41% for the current year.

Bonanza Creek Energy, Inc. BCEI is engaged in the acquisition, exploration and development of onshore oil and natural gas properties in the United States.

Bonanza Creek Energy has a VGM Score of B. The company’s expected earnings growth for the current year is 57.3%. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Par Pacific Holdings, Inc. PARR manages and maintains interests in energy and infrastructure businesses.

Par Pacific Holdings carries a Zacks Rank #2 (Buy) and has a VGM Score of A. The company has expected earnings growth of 39.6% for the current year. The Zacks Consensus Estimate for the current year has improved by 16.7% over the last 30 days.

Suburban Propane Partners, L.P. SPH is engaged, through subsidiaries, in the retail and wholesale marketing of propane and related appliances and services.

Suburban Propane Partners has a Zacks Rank #2 (Buy) and VGM Score of B. The company has expected earnings growth of 27.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.6% over the last 60 days.

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