Will Oil Make Progress in 2024 After a Dismal Show in 2023?
The oil market concluded a challenging year with Brent and WTI prices both down by around 10% in 2023, marking the most significant annual drop since 2020. For 2024, market watchers have a subdued outlook, with concerns about weak demand growth and the potential impact of geopolitical factors on oil prices.
In this environment, investors interested in the sector could benefit from having quality stocks like Murphy USA MUSA, Nine Energy Service NINE and Sunoco LP SUN in their portfolio.
Oil Suffers Annual Fall
On Friday — the last trading day of the year — the global benchmark settled at $77.04 per barrel, while U.S. crude closed at $71.65 a barrel, leaving them down 10.3% and 10.7%, respectively, in 2023.
Despite several factors traditionally supportive of oil prices, such as OPEC+'s aggressive supply cuts, Middle East conflicts, shipping attacks and production outages, the market struggled to sustain upward momentum.
OPEC, spearheaded by Russia and Saudi Arabia, implemented robust supply cuts to stabilize prices. However, a lack of consensus on demand projections heightened market uncertainty. OPEC had forecast a demand increase of 2.5 million barrels per day (bpd) for 2023, while the International Energy Agency (IEA) estimated the same to be 2.3 million bpd.
Discordant sentiments also arose from concerns about China and Germany's economic trajectories, along with high-interest environments and diminished consumer confidence. Simultaneously, record non-OPEC production from the United States, Canada, Brazil, Norway, and Guyana, coupled with increased output in Iran, contributed to the supply glut.
What’s the Outlook for 2024?
Industry experts expect WTI oil prices to remain near $80 per barrel in 2024. Weak global economic growth is predicted to limit the fuel’s consumption. Geopolitical tensions could provide support to the commodity but concerns persist about weaker demand growth.
The OPEC+ alliance's ability to sustain supply cuts is also questioned. While the cartel of oil producers has agreed to voluntary output reductions totaling about 2.2 million barrels per day for early 2024 (led by Saudi Arabia), doubts have been raised about the sustainability of these curbs. Record non-OPEC production, including from the United States, Canada, Brazil and others, is another overhang.
Concerns about an economic slump, particularly in China, contribute to a lukewarm sentiment. The rise of the electric vehicle industry is also believed to be a factor affecting oil demand.
A Word for the Investors
The overall outlook for 2024 remains cautious, with expectations of continued volatility. While geopolitical risks and potential supply disruptions are acknowledged, the prevailing sentiment is that demand growth may remain slow.
With crude prices likely to be influenced by a complex interplay of factors this year, stock picking can be tricky for investors interested in the Oil/Energy space. This is where the Zacks Rank, which justifies a company’s strong fundamentals, can come in really handy.
We have identified the following three energy stocks that currently covet spots on the Zacks Rank #1 (Strong Buy) list and look like worthy investments for 2024.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Murphy USA: The company beat the Zacks Consensus Estimate for earnings in two of the trailing four quarters and missed in the other two. It has a trailing four-quarter earnings surprise of 7%, on average.
Murphy USA is valued at around $7.6 billion. The company has seen its shares gain 30.7% in a year.
Nine Energy Service: Over the past 60 days, NINE saw the Zacks Consensus Estimate for 2023 move up 9%. The oilfield service provider has a Value Score of A.
Nine Energy Services’ current market cap is roughly $94.7 million. NINE has seen its shares drop 79% in a year.
Sunoco LP: The 2023 Zacks Consensus Estimate for SUN indicates 10.9% year-over-year earnings per unit growth.
Sunoco is valued at around $6 billion. SUN has seen its units rise 39.7% in a year.
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Sunoco LP (SUN) : Free Stock Analysis Report
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Nine Energy Service, Inc. (NINE) : Free Stock Analysis Report
