The decline in oil and gas price along with gradually easing of restrictions is likely to drive demand for gasoline.
Refineries also stand to gain from lower crude oil prices. Also, the anticipated revival in road trips post lockdowns will spur demand for gasoline, which should aid in revenue growth for the players in the Zacks Oil and Gas - Refining & Marketing industry.
Thus, focusing on stocks in this space at the moment isn’t a bad idea.
Drive Market to Set the Trend for the Upcoming Summer
Gradual relaxation of social-distancing measures, establishment shutdowns, shelter-in-place guidelines and other rigid rules that were in place to flatten the curve in the wake of the coronavirus are now being lifted in phases to allow people to slowly limp back to normalcy. One such reopening will witness drivers going back to their steering wheels. Private driving, which is considered a safer option than mass transportation, is ergo likely to see a spike this summer vacation.
Tourism, which took a major hit due to COVID-19, is resuming operations albeit at a slower pace. In fact, the space will be on the road to recovery with local travel initially. The target segment will be those who would prefer to check out nearby places, sample dishes at regional eateries, stay at local homestays for a weekend getaway or travel domestically before the desirable buoyancy in demand for international travel returns.
In fact, per a Longwoods survey, those who changed travel plans for this year, nearly a quarter or 22% switched to driving from flying.
Jessica Griscavage, director of marketing at McCabe World Travel in McLean, VA, said that her clients are a little hesitant to board an airplane right now and that they are already preparing for the drive market for the remainder of the year and probably into 2021.
Thus, increased road activity should boost demand for gasoline
Airline Travel Close on the Heels Too
Despite the pessimism showed by many market participants for the subdued flight frequency, the recent Memorial Day pick-up in holiday travel points to the reversal in airline business from the lows seen in mid-April. More than 1.5 million passengers passed through airport security checkpoints during the Memorial Day weekend. Though this is just a fraction of 12.2 million people who flew during the same period in 2019, it is the strongest surge since late March.
Meanwhile, Southwest Airlines LUV is expecting improved business in May and June. Airlines in many parts of the world are planning to resume flights starting next month. The catch-up stage in airline business will further see a spurt in demand for jet aviation fuel.
Low Input Cost
As refineries buy crude oil as their raw material, their net cash flow increases when crude oil prices fall.
Oil prices have been under tremendous pressure as initiatives like lockdowns to counter the spread of the deadly coronavirus worldwide hit fuel demand, causing ample of supplies.
Oil prices slipped nearly 1% on Monday as traders hedged bets with the Organization of the Petroleum Exporting Countries (Opec) considering meeting as soon as this week to discuss whether to extend record production cuts beyond June-end. Brent crude fell 34 cents to $37.50 a barrel.
Here we select some stocks to focus on while demand for oil rebounds this holiday season:
Murphy USA Inc. MUSA currently has a Zacks Rank #1 (Strong Buy) and an expected earnings growth rate for the current year as well as current quarter of 68.3% (versus industry decline of 10%) and 214.9% (versus industry decrease of 141%), respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.
Magellan Petroleum TELL currently has a Zacks Rank #3 (Hold). The company’s projected earnings growth rate for the current quarter is 31.8% while the same for the next five years is 31.1%.
Phillips 66 PSX: This diversified energy operator focuses on four main business segments, namely refining, marketing, chemicals and storage & transportation. The stock has seen the Zacks Consensus Estimate for current-year earnings being revised 7.5% upward over the last seven days.
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