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US Crude Hits 5-Month High on Libyan Conflict: 5 Picks

Swarup Gupta

On Apr 8, U.S. crude prices scaled new heights, finishing at its highest level in five months. An escalation of military tensions in Libya heightened fears that global crude supplies would tighten further, fueling the day’s gains. The OPEC-led cartel’s decision to curb output, and U.S. sanctions on Iran and Venezuela are the principal factors clouding the supply outlook.

Meanwhile, Goldman Sachs GS raised its yearly projections for crude prices, citing the same supply constraints. The rising likelihood of a near-term U.S.-China trade deal may also boost prices going forward. This makes it an ideal time to invest in select oil stocks.

Libyan Crisis Heightens Supply Concerns

On Monday, WTI crude increased 2.1% or $1.32 to close at $64.40 a barrel. This marked the sixth straight session of gains and the best closing level since Oct 31, 2018. Over a week, WTI crude has gained 4.9%.

The situation was almost the same on Apr 8, with U.S. crude hitting $64.77 per barrel, its highest since November 2018, before falling to $64.29 per barrel. The immediate trigger for this week’s increase was a flare-up in fighting in the troubled nation of Libya.

The conflict is now threatening to disrupt exports to the extent that it could contribute to a supply crunch. U.S. armed forces have decided to withdraw a contingent from Libya as the military conflict around Tripoli intensifies. Eastern forces are advancing on Libya’s capital and a warplane has attacked the city’s only working airport.

Goldman Raises Crude Price Outlook for 2019

In the past three months, crude posted the biggest first-quarter gain in a decade. With oil popping up to $60.55 a barrel, the March quarter witnessed the fastest rate of oil price increase since 2009.

Prices rose 30% during the quarter, underpinned mainly by the OPEC-led cartel’s supply cuts, and U.S. sanctions against Venezuela and Iran. (Read: 4 Energy Stocks to Buy as Oil Prices Breach $60 to 2019 High)

Now, Goldman believes that these factors are likely to propel crude prices higher this year. On Apr 8, the investment bank said it believes U.S. crude will maintain an average price of $59.50 per barrel in 2019, significantly higher than the earlier forecast of $55.50.

Brent crude is projected to average $66 per barrel, higher than its earlier estimate of $62.50. Goldman thinks the global oil market will suffer from a supply deficit of 0.5 million barrels per day in the second quarter.

Per the investment bank, “the threat of disruptions may drive spot prices even higher.” The manner in which OPEC eases out its current policy of supply controls will be the key determinant of oil prices in the months and years to come, according to Goldman.

Our Choices

With chances of a quick de-escalation in Libya appearing thin, U.S. crude prices are likely to remain firm in the near term. The OPEC-led cartel’s supply cuts and U.S. sanctions on Iran and Venezuela have already heightened supply constraints for the year.

These are the factors that have prompted Goldman to raise its crude price projections for 2019. Adding oil stocks to your portfolio looks like a smart option. However, picking winning stocks may prove to be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. 

We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM Score.

Cabot Oil & Gas Corporation COG is an independent oil and gas exploration company with producing properties mainly in the continental United States.

Cabot Oil has a Zacks Rank #1 (Strong Buy) and VGM Score of A. The company’s expected earnings growth for the current year is 67.9%. The Zacks Consensus Estimate for the current year has improved by 9% over the past 30 days.

Murphy USA Inc. MUSA is a leading independent retailer of motor fuel and convenience merchandise in the United States.

Murphy USA has a Zacks Rank #1 and VGM Score of A. The Zacks Consensus Estimate for the current year has improved by 1.1% over the past 60 days.

ConocoPhillips COP is the largest oil and gas exploration and production player in the world.

ConocoPhillips has a Zacks Rank #1 and VGM Score of B. The Zacks Consensus Estimate for the current year has improved by 2.8% over the past 30 days.

Antero Resources AR is an independent explorer, primarily engaged in the acquisition and development of natural gas, natural gas liquids and oil resources in the Appalachian Basin.

Antero Resources has a VGM Score of A. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Devon Energy Corporation DVN is an independent energy company engaged primarily in the exploration, development and production of oil and natural gas.

Devon Energy has a Zacks Rank #2 (Buy) and VGM Score of B. The company has expected earnings growth of 24.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 27.9% over the past 30 days.

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The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report
 
Murphy USA Inc. (MUSA) : Free Stock Analysis Report
 
Antero Resources Corporation (AR) : Free Stock Analysis Report
 
Cabot Oil & Gas Corporation (COG) : Free Stock Analysis Report
 
Devon Energy Corporation (DVN) : Free Stock Analysis Report
 
ConocoPhillips (COP) : Free Stock Analysis Report
 
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