Demand for oil across the globe was hit hard over the past few months, owing to complete inactivity in transportation. As airlines were stalled and vehicles were off the roads because of strict stay-at-home orders around the world, oil prices turned negative around April-end. But thankfully, oil prices picked up again and will likely continue to move north owing to the economy reopening, lower U.S. inventories and ongoing supply cut by major oil producers.
Oil Rises on Optimism Over Fuel Demand
Brent crude closed at $39.57 and West Texas Intermediate crude oil ended at $36.81 on Jun 2. Both benchmarks have increased in recent weeks, with Brent crude rising more than double since Apr 21 when the benchmark dropped to $15.98 a barrel for the first time since 1999. Many factors are fueling this steady rise in oil prices.
First, oil production cuts by major producing countries that began on May 1 are expected to be followed through to June-end. In April, the OPEC+ had agreed to curb oil production by 9.7 million barrels per day to bring oil prices back on track as the coronavirus-triggered lockdown had dragged oil demand down.
Under the current agreement, these supply cuts will be 7.7 million barrels per day from July to the end of 2020, and 5.8 million barrels per day from January 2021 to April 2022.
Second, with the global economies reopening, demand for fuel is expected to pick up. And an indication that excess supply is easing is the fact that U.S. crude inventories fell by 483,000 barrels last week, according to the American Petroleum Institute report on Jun 2.
Why Invest in Oil Producers Right Now?
Given the leap in both the oil benchmarks, one could consider investing in key oil and energy players. To be specific, upstream oil companies could be the top beneficiaries from this increase in oil prices.
After all, these companies are engaged in activities such as exploration and production of oil. Therefore, when prices of crude go up, the price at which these companies sell the commodity will also move higher, thus giving them room for profit.
4 Oil Stocks to Buy
This is why we have rounded up four stocks from the Zacks Oil and Gas - Exploration and Production - United States industry that one could consider investing in. All these stocks carry a Zacks Rank #2 (Buy).
Chaparral Energy, Inc. (CHAP) is an explorer and producer of oil and natural gas. The Zacks Consensus Estimate for the company’s current-year earnings has moved 22.4% north in the past 60 days. Its expected earnings growth rate for the current year is 57.8%.
Devon Energy Corporation (DVN) is an independent energy company that explores, develops and produces oil, natural gas and natural gas liquids. The Zacks Consensus Estimate for the company’s current-year earnings has moved 63.9% north in the past 60 days. Its expected earnings growth rate for next year is 23.3%.
Comstock Resources, Inc. (CRK) is an independent oil and gas exploration and production company engaged in the acquisition, exploration and development of oil and gas properties. The Zacks Consensus Estimate for the company’s current-year earnings has moved 5.4% north in the past 60 days. Its expected earnings growth rate for next year is 87.2%.
Gulfport Energy Corporation (GPOR) is a producer of crude oil and natural gas liquids. The Zacks Consensus Estimate for the company’s current-year earnings has moved 48.4% north in the past 60 days. Its expected earnings growth rate for next year is 15.6%.
Zacks Top 10 Stocks for 2020
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