Oil prices staged a spectacular rebound on Dec 26, following a massive plunge on Christmas Eve. U.S. crude gained 8.7%, posting its best day since Nov 2016 after losing almost 7% on Dec 24. Analysts believe that the rebound was essentially a relief rally and much like Monday’s plunge, lacked fundamental basis.
Currently, oil is poised to end the year on a weak note. Concerns over declining global demand and surging U.S. output had heightened oversupply fears significantly over October and November. And this led to a massive drop in prices despite Trump’s decision to re impose U.S. sanctions on Iran.
However, analysts now believe that oil could experience a recovery in 2019. Fresh production curbs from OPEC and its allies will begin to have an impact on crude supplies, aided by Canada. Pipeline bottlenecks are also likely to impede U.S. production. This is why it continues to make sense to invest in select oil stocks.
Recent Plunge Had No Fundamental Basis
After a dismal plunge on Monday, oil prices rebounded strongly on Wednesday with both U.S. and Brent crude prices gaining around 8%. WTI crude increased 8.7% to close at $46.22, recovering from a 6.7% drop on Monday. Also, Brent crude gained 7.9% to end at $54.47. These were their largest one-day gains since Nov 30, 2016.
Significantly, on that date, OPEC had inked a historic deal to curb crude output. In any case, the recent plunge and subsequent recovery lacked any fundamental basis. Crude was dragged down by broader market weakness. This includes the current government shutdown, a tighter rate environment and the U.S.-China trade dispute.
2019: A Tale in Two Parts?
Considering a longer-term perspective, oil’s outlook for next year can be divided into two equal parts. The likes of JPMorgan JPM, Goldman Sachs GS, Barclays BCS and the Energy Information Administration believe prices will rebound in the first half of 2019. Since October, crude prices have lost around 40%.
Overall, Wall Street thinks that the average price of Brent crude will come in at $68-$73 a barrel in 2019. Projections for U.S. crude are within a range of $59-$66 a barrel. The major driver for crude prices in the first half of the year is likely to be fresh production curbs from OPEC, effective from January.
Output cuts from Canada will also boost prices during this period. Meanwhile, pipeline bottlenecks will cap U.S. production increases, specifically in the Permian basin.
Fresh Headwinds Likely in 2H19
However, even though the outlook for 2019 is encouraging, the second half of the year could witness the arrival of several headwinds. U.S. output will surge during this period once the availability of Permian oil improves. Also, global economic growth is expected to decline during this period.
The most significant threat to crude prices is a slowdown in China’s economy. This will likely intensify if the United States and China fail to reach a trade agreement. Meanwhile, China has recently been producing large volumes of gasoline which threaten to create a global glut of sorts.
The overall outlook for crude indicates a significant improvement from the current situation even though oil prices could slip in the second half of 2019. Fresh production curbs from OPEC and its allies and output cuts from Canada are likely to play a crucial role in boosting crude prices.
This is why it makes sense to invest in select oil stocks at this point. 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, each of which has a Zacks Rank #1 (Strong Buy) and a good VGM Score. You can see the complete list of today’s Zacks #1 Rank stocks here.
Eclipse Resources Corporation ECR is an independent exploration and production company.
Eclipse Resources has a VGM Score of A. The company’s projected growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved more than 100% over the last 30 days.
Gran Tierra Energy Inc. GTE is an international oil and gas exploration and production company.
Gran Tierra Energy has a VGM Score of A. The company’s projected growth rate for the current year is more than 100%.The Zacks Consensus Estimate for the current year has improved 52.2% over the last 30 days.
Unit Corporation UNT is a diversified energy company with U.S. operations.
Unit Corp has a VGM Score of A. The company’s projected growth rate for the current year is 82.1%. The Zacks Consensus Estimate for the current year has improved 4.2% over the last 30 days.
Transportadora de Gas del Sur S.A. TGS transports natural gas in Argentina.
Transportadora de Gas del Sur has a VGM Score of A. The company’s expected earnings growth for the current year is 16.8%. The Zacks Consensus Estimate for the current year has improved more than 100% over the last 60 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 has a VGM Score of B. The company’s projected growth rate for the current year is more than 100%.
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JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
Barclays PLC (BCS) : Free Stock Analysis Report
The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
CrossAmerica Partners LP (CAPL) : Free Stock Analysis Report
Gran Tierra Energy Inc. (GTE) : Free Stock Analysis Report
Unit Corporation (UNT) : Free Stock Analysis Report
Transportadora De Gas Sa Ord B (TGS) : Free Stock Analysis Report
Eclipse Resources Corporation (ECR) : Free Stock Analysis Report
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