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Optimism Returns to Oil Markets as WTI Crosses $50: 4 E&P Bets

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Kaibalya Pravo Dey
·5 min read
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Saudi Arabia has revealed its intention to cut an additional 1 million barrels of oil per day (bpd) of production in February and March, while other producers of the OPEC+ group will either hold steady or make small output hikes. The decision surprised the market, pushing WTI Crude price above the $50 per barrel mark for the first time since February 2020.

In the OPEC+ meeting, Russia divulged that it was looking for a 500,000 bpd production hike in February. Per the latest decision, the country and Kazakhstan will likely add a melded 75,000 bpd of production in the next two months. Nevertheless, Saudi Arabia’s latest pledge of additional unilateral cuts is expected to more than offset Russia and Kazakhstan’s production hike.

More Focus on Demand

No doubt, investors and oil market chiefs are thrilled about this New Year gift, as the price rise means that the energy recovery process is strong. However, once bitten twice shy, the market is expected to take cautious steps this year, following last year’s painful price drops that put several companies out of business. Hence, prudent investors are more focused on the demand front of energy spectrum than the supply side.

Overall energy demand is expected to rise, given the rollout of multiple coronavirus vaccines around the globe. Even though the pandemic is still raging, the vaccine rollouts can boost morale and slowly bring back lives to normalcy. With traveling likely to increase in the coming days, hydrocarbon demand can increase. As such, one can say that the vaccines have secured a lifeline for oil companies.

Price Rise to Boost Upstream Profits

Last year, energy companies — especially those with hydrocarbon portfolios — had to slash capital budgets to navigate through the turbulent period. Although the outlook for oil and gas is getting better, the companies are still likely to take heedful measures even in 2021. This will build a sustainable growth path for the firms. Moreover, the increasing crude prices will boost their profits. Also, the bullish outlook for natural gas will provide hydrocarbon producers further support.

Rising domestic demand, liquefied natural gas exports and decreased production are boosting natural gas’ price. Throughout 2021, gas prices are expected to average $3.01 per million British thermal units, reflecting a significant increase from the estimated 2020 figure of $2.07, per the U.S. Energy Information Administration.

Upstream Price Performance

While the overall energy sector has outperformed the S&P 500 Index in the past three months, the U.S. upstream industry has convincingly outdone these two. This means that the industry is recovering, which is not being missed by investors.

Given this cautiously bullish backdrop, we are presenting four upstream stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy) that can do wonders for your portfolio. You can see the complete list of today’s Zacks #1 Rank stocks here.

W&T Offshore, Inc. WTI: Headquartered in Houston, TX, W&T Offshore is a leading oil and natural gas explorer, with operations primarily focused on resources located off the coast of the Gulf of Mexico. This has enabled this Zacks Rank #1 player to develop significant technical expertise in the major prolific oceanic rift basin. The Gulf of Mexico provides unique advantages, including low decline rates, world-class permeability and significant potential reserves that are untapped. The company’s bottom line for 2021 is expected to improve 77.9% year over year.

Centennial Resource Development, Inc. CDEV: Denver, CO-based Centennial Resource primarily develops unconventional hydrocarbon reserves in the Delaware Basin, which constitutes part of the prolific Permian Basin. This Zacks Rank #2 company has a huge acreage position in the Delaware Basin, with operations across 80,100 net acres of land. It has 2,400 drilling locations in the sub-basin that are likely to provide the company with years of crude production. Moreover, its balance sheet strength is commendable. Centennial Resource’s profits for 2021 are expected to improve 94.7% year over year.

Diamondback Energy, Inc. FANG: The acquisitions of Energen and Ajax Resources have transformed Midland, TX-headquartered Diamondback into one of the leading Permian Basin oil producers. Importantly, the combined entity is expected to generate synergies in the range of $2-$3 billion, primarily driven by lower drilling and completion costs. Moreover, its substantial ownership interest in Rattler Midstream provides it with additional source of liquidity from Midland and Delaware Basin assets. This Zacks Rank #1 company’s bottom line for 2021 is expected to improve 57.7% year over year.

Bonanza Creek Energy, Inc. BCEI: Denver, CO-based Bonanza Creek has oil and liquid-rich assets in the Wattenberg Field, which is a major positive. Its core operating areas are located in the DJ Basin in Colorado and Cotton Valley formation in southern Arkansas. Moreover, its Rocky Mountain infrastructure — with 100 million cubic feet per day of natural gas gathering capacity — is a huge positive.  This Zacks Rank #1 company’s bottom line for 2021 is expected to improve 41.7% year over year.

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W&T Offshore, Inc. (WTI) : Free Stock Analysis Report
 
Diamondback Energy, Inc. (FANG) : Free Stock Analysis Report
 
Bonanza Creek Energy, Inc. (BCEI) : Free Stock Analysis Report
 
Centennial Resource Development, Inc. (CDEV) : Free Stock Analysis Report
 
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