U.S. markets closed

Production Cut, Demand Optimism Boost Oil Price: 4 Winners

Ritujay Ghosh

Oil prices jumped on May 18 by more than $1 a barrel to their highest in more than a month. The rise was aided by ongoing output cuts and signs of recovery in demand for fuel as economies have started easing curbs that were imposed to contain the spread of coronavirus.

Demand for crude oil is likely to jump once again as countries start lifting lockdown, factories start opening and more vehicles start moving on the roads.

Oil prices have been under pressure for quite some time now, as widespread lockdown pushed fuel demand to historic lows. This left many countries with ample supplies that became difficult to be stored. However, with oil prices once again rising, energy players, particularly those engaged in exploration and production, are likely to gain.

Oil Price Climbs to Month High

On May 18, Brent crude was up $1.13, or 3.5%, at $33.88 a barrel by 04:06 EDT, after touching a high since Apr 13.  West Texas Intermediate (WTI) crude was up $1.59 or 5.3%, at $30.99 a barrel, after rising to its highest since Mar 16.

The June WTI expires on May 19. However, there were negligible signs of WTI repeating the historic plunge to below zero recorded last month a day ahead of its May expiry. Also, U.S. energy firms are cutting down on the number of natural gas and oil rigs operating to an all-time low for the second week in row.

Oil Price Jumps on Optimism

U.S. energy firms cutting the number of oil and natural gas rigs are partially easing concerns about the WTI contract’s delivery point in Cushing, OK, running out of space. Also, production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies including Russia, also known as OPEC+, are helping oil prices.

Saudi Arabia, the world’s largest oil exporter last week pledged to cut an additional 1 million barrels per day in June. OPEC+ also wants to maintain existing oil cuts beyond June when the group is next due to meet. The positive mood was also reinforced after U.S. Federal Reserve Chairman Jerome Powell last week issued an optimistic outlook for economic recovery by the end of this year.

Our Choices

A lot of factors have been aiding oil prices lately. It is unlikely that the WTI will be repeating the historic plunge of last month. Optimism stemming from economies finally opening up should once again push demand for fuel and propel oil prices in the days to come. Given this situation, it would be prudent to invest in these four energy players that are involved in exploration and production. 

Chaparral Energy, Inc. CHAP focuses on exploration and production (E&P) of oil and natural gas deposits in Stack, Meramec and Osage, Oswego, and Woodford located in Oklahoma and the Texas Panhandle.

The company’s expected earnings growth rate for the current year is 35.6%. The Zacks Consensus Estimate for current-year earnings has improved 60.5% over the past 60 days.  Chaparral Energy sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Extraction Oil & Gas, Inc. XOG is focused on the acquisition, development and production of oil, natural gas and natural gas liquid (NGL) reserves in the Rocky Mountains, primarily in the Wattenberg Field of the Denver-Julesburg Basin of Colorado.

The company’s expected earnings growth rate for the current year is more than 100%. The company’s shares have gained 0.4% over the past 30 days.  Extractionhas a Zacks Rank #2 (Buy).

Highpoint Resources Corp HPR is engaged in the development of oil and natural gas assets primarily in the Denver-Julesburg Basin of Colorado. 

The company’s expected earnings growth rate for the current year is 15%. The company’s shares have jumped 47.4% over the past 30 days.  Highpoint Resourcescarries a Zacks Rank #2.

Noble Energy Inc. NBL is an independent energy company engaged in the exploration and production of crude oil, natural gas and natural gas liquid across the world.

The company’s expected earnings growth rate for the current year is more than 100%. The company’s shares have jumped 24.8% over the last 30 days.  Highpoint Resourcescarries a Zacks Rank #2.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.

This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.

See their latest picks free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Noble Energy Inc. (NBL) : Free Stock Analysis Report
 
EXTRACTION OG (XOG) : Free Stock Analysis Report
 
HIGHPOINT RESOURCES CORP (HPR) : Free Stock Analysis Report
 
Chaparral Energy, Inc. (CHAP) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research