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OPEC Cuts Production Targets: Time to Get into Oil Stocks?
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The Organization of the Petroleum Exporting Countries (OPEC) have breathed new life into the energy sector, which has been languishing over the last few months on increased concerns about a global recession or slowdown that could further depress consumption and therefore, prices. The only hope was that the economy could somehow claw back without major mishap. But that too was dashed because of the bank failures. Their subsequent rescue did, however, re-instill some confidence, although it was a pretty bumpy ride in March.
For the same reasons, oil prices that the energy sector tracks, haven’t been too hot in recent history. Not, that is, until the Saudi Arabia announcement. The country has said it will cut production by 500,000 barrels per day (bpd) starting May, Iraq has agreed to cut by 200,000 bpd, UAE 144,000 bpd, Kuwait 128,000 bpd, Algeria 48,000 bpd and Oman 40,000 bpd. That means we are looking at a production cut of over a million bpd. After the announcement, both Brent and WTI shot up over 5% and are closing in on 6% as of this writing.
This is an obvious indication that at the risk of pushing the global economy into recession, oil-producing countries will move to protect prices. Energy cost being an important component of overall transportation costs thus impacts every sector. Therefore, inflation will be a tougher nut to crack, even with the Fed’s resolve. Especially at a time when China demand is roaring back and refineries are running at the kind of margins that makes them want to consume more and more crude.
As a result, many analysts who were expecting oil to close the year north of $90 a barrel are now projecting something closer to $100 by year end. So as you might expect, oil stocks are hot again. So let’s take a look at a few you may want to pick up today-
Sunoco is one of the biggest wholesale distributors of more than 10 motor fuel brands that are sourced from refiners and sold to roughly 10,000 customers in the U.S. including independent dealers, commercial customers, convenience stores and distributors. Many of its supply contracts are for the long term, which leads to relative stability in cash flows.
While its long-term agreements mean that production cuts and price hikes are not directly beneficial and may in fact be harmful if there is a recession that hurts volumes, this is a good defensive play in the current environment when we don’t really know what will happen in the next year, or even in the next six months.
In the last 60 days, the 2023 estimate increased a dime while the 2024 estimate increased a penny. So analysts too appear positive about the stock.
Zacks has a #1 (Strong Buy) rating and Value Score of A on the stock.
CVR engages in petroleum refining and nitrogen fertilizer manufacturing activity. The Petroleum segment caters to retailers, railroads, farm co-operatives and other refiners/marketers. The Nitrogen segment supplies agricultural and industrial customers. Given the shortage of key commodities in the world today as a result of geopolitical tensions, both segments are well positioned. This may not constitute growth from the very strong business levels in 2022, but business remains strong per se.
Analysts have raised the 2023 estimate by $1.03 (36.8%) in the last 60 days and there could be further upward revisions now. The 2024 estimate is up 15 cents (6.5%) in the same time period.
The stock carries a Zacks Rank #1 and an A each for Value, Growth and Momentum.
Par Pacific has refining, retail and logistics operations mainly in Hawaii, the Pacific Northwest, Wyoming and South Dakota. Its three refineries produce ultra-low sulfur diesel, gasoline, jet fuel, marine fuel, distillate, asphalt, low sulfur fuel oil and other associated refined products; the Retail segment operates 121 fuel retail outlets that also sell soft drinks, prepared foods and other sundries; and the logistics segment owns and operates terminals, pipelines, a single point mooring and trucking operations to distribute refined products. Therefore Par Pacific should gain from stronger pricing.
Analysts clearly like the company’s prospects. In the last 60 days, they have raised the 2023 estimate 65 cents (9.9%). The 2024 estimate is up 82 cents (21.1%).
Zacks has a #1 rank on the stock and has awarded an A for Value, Growth as well as Momentum.
One-Month Price Performance
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OPEC Cuts Production Targets: Time to Get into Oil Stocks?
The Organization of the Petroleum Exporting Countries (OPEC) have breathed new life into the energy sector, which has been languishing over the last few months on increased concerns about a global recession or slowdown that could further depress consumption and therefore, prices. The only hope was that the economy could somehow claw back without major mishap. But that too was dashed because of the bank failures. Their subsequent rescue did, however, re-instill some confidence, although it was a pretty bumpy ride in March.
For the same reasons, oil prices that the energy sector tracks, haven’t been too hot in recent history. Not, that is, until the Saudi Arabia announcement. The country has said it will cut production by 500,000 barrels per day (bpd) starting May, Iraq has agreed to cut by 200,000 bpd, UAE 144,000 bpd, Kuwait 128,000 bpd, Algeria 48,000 bpd and Oman 40,000 bpd. That means we are looking at a production cut of over a million bpd. After the announcement, both Brent and WTI shot up over 5% and are closing in on 6% as of this writing.
This is an obvious indication that at the risk of pushing the global economy into recession, oil-producing countries will move to protect prices. Energy cost being an important component of overall transportation costs thus impacts every sector. Therefore, inflation will be a tougher nut to crack, even with the Fed’s resolve. Especially at a time when China demand is roaring back and refineries are running at the kind of margins that makes them want to consume more and more crude.
As a result, many analysts who were expecting oil to close the year north of $90 a barrel are now projecting something closer to $100 by year end. So as you might expect, oil stocks are hot again. So let’s take a look at a few you may want to pick up today-
Sunoco LP (SUN - Free Report)
Sunoco is one of the biggest wholesale distributors of more than 10 motor fuel brands that are sourced from refiners and sold to roughly 10,000 customers in the U.S. including independent dealers, commercial customers, convenience stores and distributors. Many of its supply contracts are for the long term, which leads to relative stability in cash flows.
While its long-term agreements mean that production cuts and price hikes are not directly beneficial and may in fact be harmful if there is a recession that hurts volumes, this is a good defensive play in the current environment when we don’t really know what will happen in the next year, or even in the next six months.
In the last 60 days, the 2023 estimate increased a dime while the 2024 estimate increased a penny. So analysts too appear positive about the stock.
Zacks has a #1 (Strong Buy) rating and Value Score of A on the stock.
CVR Energy, Inc. (CVI - Free Report)
CVR engages in petroleum refining and nitrogen fertilizer manufacturing activity. The Petroleum segment caters to retailers, railroads, farm co-operatives and other refiners/marketers. The Nitrogen segment supplies agricultural and industrial customers. Given the shortage of key commodities in the world today as a result of geopolitical tensions, both segments are well positioned. This may not constitute growth from the very strong business levels in 2022, but business remains strong per se.
Analysts have raised the 2023 estimate by $1.03 (36.8%) in the last 60 days and there could be further upward revisions now. The 2024 estimate is up 15 cents (6.5%) in the same time period.
The stock carries a Zacks Rank #1 and an A each for Value, Growth and Momentum.
Par Pacific Holdings, Inc. (PARR - Free Report)
Par Pacific has refining, retail and logistics operations mainly in Hawaii, the Pacific Northwest, Wyoming and South Dakota. Its three refineries produce ultra-low sulfur diesel, gasoline, jet fuel, marine fuel, distillate, asphalt, low sulfur fuel oil and other associated refined products; the Retail segment operates 121 fuel retail outlets that also sell soft drinks, prepared foods and other sundries; and the logistics segment owns and operates terminals, pipelines, a single point mooring and trucking operations to distribute refined products. Therefore Par Pacific should gain from stronger pricing.
Analysts clearly like the company’s prospects. In the last 60 days, they have raised the 2023 estimate 65 cents (9.9%). The 2024 estimate is up 82 cents (21.1%).
Zacks has a #1 rank on the stock and has awarded an A for Value, Growth as well as Momentum.
One-Month Price Performance
Image Source: Zacks Investment Research