What OPEC's Extended Production Cuts Mean for Oil Markets
OPEC+ members have announced an extension of voluntary oil production cuts for another three months, in a bid to stabilize oil markets amid geopolitical tensions and uncertain global demand. While the announcement was largely anticipated, it still had a positive impact on oil prices. If nothing else, this is expected to provide support to the commodity in the short term. Market analysts believe that maintaining the cuts signals OPEC+'s cautious approach to returning supply volumes gradually.
Coupled with the resilient demand expectations, we believe that oil’s current levels of around $78 allow long-term-oriented market participants to buy shares in quality companies at attractive prices. Investors interested in the sector could benefit from having top-ranked stocks like Valaris Limited VAL, Murphy USA MUSA and Sunoco LP SUN in their portfolio.
The Extension Announcement
Since 2022, OPEC+ countries, led by Saudi Arabia and Russia, have implemented various production cuts to support oil prices, as the market grapples with rising U.S. production and sluggish global demand. The latest round of voluntary cuts, which began in January, aimed to reduce combined production targets by approximately 2.2 million barrels per day (bpd).
The decision to extend the voluntary cuts until the end of June was confirmed by Saudi Arabia's state news agency. In a surprising move, Russia announced an additional voluntary cut of 471,000 bpd for the second quarter. This decision, along with the commitment from other key producers like Iraq and the UAE to extend their cuts, underscores the collective effort to stabilize oil markets.
Outlook
Overall, while the extension of OPEC+ production cuts signals a commitment to stabilize prices, concerns about global economic growth and uncertainties surrounding demand projections continue to influence market sentiment. All eyes are now on the semi-annual meeting of OPEC+ ministers scheduled for Jun 1, where analysts expect discussions on the production policy for the second half of the year.
3 Energy Stocks to Buy
Having gone through the OPEC+ decision, investors interested in the energy space might consider the operators mentioned below. Each of these companies currently carries a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Valaris Limited: The 2024 Zacks Consensus Estimate for VAL indicates 324.1% year-over-year earnings per share growth.
Valaris is valued at around $4.8 billion. VAL has seen its shares fall 12.8% in a year.
Murphy USA: Murphy USA beat the Zacks Consensus Estimate for earnings in three of the trailing four quarters and missed in the other. It has a trailing four-quarter earnings surprise of 13.6%, on average.
Murphy USA is valued at around $8.7 billion. The company has seen its shares surge 61.2% in a year.
Sunoco LP: The 2024 Zacks Consensus Estimate for SUN indicates 34% year-over-year earnings per unit growth.
Sunoco is valued at around $6.2 billion. SUN has seen its units rise 33.7% in a year.
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