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Fresh trade war issues between the United States and China may have dented global oil prices to some extent. But, in the long run, supply side constraints amid escalating demand will surely boost oil prices.
Let us not forget that oil prices did touch a four-year peak on Jul 10 due to such supply-side outages. Fresh workforce strikes in Gabon and Norway affected supply. At the same time, there are production disruptions in Venezuela and Libya as well as anticipation of a massive Iranian export dip.
As the long run bodes well for oil prices, energy companies are expected to come up with robust results. Hence, investing in some of the sought-after oil majors doesn’t seem to be a bad proposition.
Oil Prices Nearly Hits $80-a-Barrel
On Jul 10, the West Texas Intermediate (WTI) crude rose 26 cents or roughly 0.4%, to settle at $74.11 a barrel on the New York Mercantile Exchange. The international benchmark Brent for September settlement rose 79 cents or 1% to end the session at $79.51 a barrel on the London-based ICE Futures Europe exchange. Crude futures finished higher yesterday, with the global benchmark tapping a session-high close to $80-a-barrel mark.
Meanwhile, a separate report issued by the U.S. Energy Information Administration yesterday disclosed that the WTI and Brent crude price forecasts for 2018 and 2019 have moved up 2.2% and 1.1%, respectively.
Despite record-high domestic production, the oil benchmark in the United States has attained its highest settlement since November 2014 so far this year. Price appreciation in the first half extends the upbeat tone in crude trade into the final six months of this year.
What Stokes the Crude Price Rally?
Steeper WTI and Brent futures curves mirror a stretched oil market scenario.
Fresh Workforce Strikes in Gabon & Norway
Tuesday’s record gain in oil prices primarily stemmed from small labor strikes in Norway and Gabon. A small workers’ strike on the platforms of North Sea reportedly led to a decline in Norway’s crude and natural-gas liquid production by 23,000 barrels per day (bpd) and 3,500 bpd, respectively. Similarly, a 15-day laborer’s strike in the facilities of the French oil producer Total is predicted to slash Gabon’s crude output by 54,000 bpd.
Venezuela, Libya & Canada Output Woes
Outages in Canada, Libya and particularly the crisis-riddled Venezuela have significantly shrunk the cushion of spare capacity in the global energy industry. Venezuela is on the verge of an economic breakdown, with oil output dwindling more than 40% since 2016. Furthermore, renewed U.S. sanctions on the Maduro regime will strangle the energy sector of this Latin American nation. On the other hand, Libyan crude production is sliding every day on account of oil port closures. Since February, the country’s crude production has dipped from 1.28 million bpd to 527,000 bpd. Moreover, Syncrude Energy’s oil sands production outages will continue to weigh on Canadian crude supplies until mid-September.
Imminent Decline in Iranian Exports
Trump’s stance over Iran has outpaced Wall Street’s expectations. The United States’ refusal to issue any waiver on cutting crude imports from Iran by Nov 4 has largely fueled the ongoing oil price rally. Last month, the U.S. President withdrew from a nuclear deal with OPEC’s third-largest producer and pledged to reimpose sanctions on Tehran. The action has spurred worries over an expected cut in Iranian oil exports – at 2.7 million barrels a day – by around one million barrels and led to a supply shortage in an already tight oil market.
Robust demand is also propelling oil prices lately. Crude consumption continues to rally on the back of sturdier global economic growth. Per the International Energy Agency (IEA), worldwide oil demand for 2018 will be 99.3 million bpd, up 1.5% year over year.
Moreover, a break in U.S. share boom might also drive prices going forward. Shortages of skilled and pipeline workers is currently troubling the country’s shale facilities. Notably, the IEA predicts that American share boom will plateau in the 2020s.
Top Five Energy Picks
Multiple supply concerns and an upbeat demand side picture are serving well to boost crude prices at this moment. Investing in stocks of oil companies looks like a smart option at this point.
On a year-to-date basis, the Zacks Oils-Energy sector rallied 5.5%, outperforming 4.4% growth recorded by the S&P 500 group.
In sync with this, we have handpicked five top-ranked energy stocks that will likely add a sparkle to your portfolio.
These stocks currently sport a Zacks Rank #1 (Strong Buy) and flaunts a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
BP plc BP engages in energy business globally.
The Zacks Consensus Estimate for earnings has moved up 6.7% to $3.34 per share for 2018, in the last 60 days. Notably, the projected year-over-year earnings growth rate for the company is currently pegged at 77.7% and 2.4% for 2018 and 2019, respectively. BP’s shares have gained 9.3% in the past three months.
ConocoPhillips COP explores, produces and markets crude oil, natural gas, bitumen and natural gas liquids globally.
The Zacks Consensus Estimate for earnings has moved up 15.8% to $4.17 per share for 2018, in the last 60 days. Notably, the projected year-over-year earnings growth rate for the company is currently pegged at 595% and 8.1% for 2018 and 2019, respectively. ConocoPhillips’ shares have gained 13.4% in the past three months.
Chevron Corporation CVX engages in integrated petroleum, energy and chemical operations globally.
The Zacks Consensus Estimate for earnings has moved up 14.5% to $8.52 per share for 2018, in the last 60 days. Notably, the projected year-over-year earnings growth rate for the company is currently pegged at 130.3% and 8.7% for 2018 and 2019, respectively. Chevron’ shares have gained 7% in the past three months.
HollyFrontier Corporation HFC is a petroleum refiner in the United States.
The Zacks Consensus Estimate for earnings has moved up 26.9% to $6.09 per share for 2018, in the last 60 days. Notably, the projected year-over-year earnings growth rate for the company is currently pegged at 162.5% and 17.9% for 2018 and 2019, respectively. HollyFrontier’s shares have gained 27.2% in the past three months.
Canadian Natural Resources Limited CNQ produces and markets natural gas, crude oil, and natural gas liquids globally.
The Zacks Consensus Estimate for earnings has moved up 13.5% to $2.52 per share for 2018, in the last 60 days. Notably, the projected year-over-year earnings growth rate for the company is currently pegged at 173.9% and 13% for 2018 and 2019, respectively. Canadian Natural Resources’ shares have gained 8.2% in the past three months.
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