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Oil at 2016 Highs: 5 Energy Stocks Making Most of the Trend
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Oil prices are hovering close to the psychological $50 per barrel mark and we feel the time has come for the long beleaguered sector to come back to life. Since mid-2014, the commodity’s price has been plunging primarily due to excess supply of crude in the global market. However, the wheel of fortune is slowly turning for the space which witnessed the 12-year low mark of $26.05 per barrel for West Texas Intermediate (WTI) crude in mid-February this year. This is remarkable considering the fact that the overall market sentiment usually veers toward profit booking prior to the Memorial Day weekend.
Rebound in the Cards?
The upside in this space is mainly driven by lower production from the non-OPEC space. The International Energy Agency (IEA), the OECD energy watchdog, is also bullish on the demand growth prospects of the trio – India, China and Russia. Per the agency, the triad consumed about 1 million barrels per day more year over year in the first quarter of 2016.
Our bullishness is further compounded by the latest weekly data from the Energy Information Administration (EIA) that revealed a fall in U.S. crude stocks as imports dropped and refineries cut output. The optimism was also echoed by the American Petroleum Institute (API) – the largest oil industry association in the U.S.
As a result, investors' hopes were rekindled on oil and the commodity, which is showing overall improvement after touching the lowest point in mid-February. Also, the domestic oil count stopped the southward march last week when it stopped a steady eight-week fall, as revealed by Baker Hughes Inc. .
We feel the correction in rig count is a blessing in disguise for the beleaguered energy space. This is due to the simple fact that over the past decade, the space has seen a mammoth rise in drilling and production related capacities. This resulted in an invariable rise in production levels. However, the correction in rig count clears the path for stability in the space.
Recovery at the Right Time
The current change in demand-supply dynamics put energy players on radar of investors long awaiting a lift in the fortunes of the space. So long, the sector was ravaged by falling realizations from upstream operations which dragged down the overall picture. The downfall continues to affect the performance of even the largest players in the space like Royal Dutch Shell plc which recently announced the axing of another 2,200 jobs globally in 2016.
Now What?
Now, investors can only hope that the decline in the production level does not end up being a mirage. After all, the entire diminishing inventory overhang has been a key part of our favorable view of the oil space this year.
We however did not foresee the unplanned supply disruption out of Nigeria and Canada, but those are temporary in any case and will eventually be back online. But it’s reduced volumes from the U.S. shale basins purely on economic ground that are likely to be the more enduring cure for the oil market’s supply problems. Production declines from the shale basins have proved to be a lot slower than many of us had envisioned, but it’s happening nevertheless and the trend is expected to only accelerate in the coming days despite the commodity’s recent favorable momentum.
On a final note Wall Street giant Citigroup Inc. (C - Free Report) upped the ante by pushing WTI to $61 per barrel by year-end 2017.
Top Stocks Rallying with Crude
A number of energy stocks saw their prices head north along with an uptrend in the prices of commodities they deal with. Below we highlight five such energy stocks that are gaining. Each of these stocks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Contango Oil & Gas Company
Houston, TX-based, independent energy company Contango Oil & Gas Company is engaged in the acquisition, exploration, development, exploitation and production of crude oil and natural gas offshore in the shallow waters of the Gulf of Mexico and in the onshore Texas Gulf Coast and Rocky Mountain regions of the United States. The upstream energy operator’s shares have shot up roughly 86.3% year to date.
Sanchez Energy Corporation is an independent exploration and production company focused on the acquisition and development of unconventional oil and natural gas resources in the onshore U.S. Gulf Coast. The company’s main current focus is on the Eagle Ford Shale in South Texas and the Tuscaloosa Marine Shale. The stock has jumped 80.3% to date this year and has surprised earnings to the upside in three of the last four quarters.
Rose Rock Midstream, L.P.
Headquartered in Tulsa, OK, Rose Rock Midstream, L.P. is a midstream energy partnership. The partnership provides crude oil gathering, transportation, storage and marketing services with the majority of its assets strategically located in or connected to the Cushing, Oklahoma crude oil marketing hub. The stock has jumped 58.1% year to date.
McDermott International Inc.
McDermott is a leading provider of integrated engineering, procurement, construction and installation (EPCI) and module fabrication services for upstream field developments worldwide. The company delivers fixed and floating production facilities, pipelines, installations and subsea systems from concept to commissioning for complex Offshore and Subsea oil and gas projects. The company has seen a 40% spike in its share price to date.
Calgary-based Pembina Pipeline Corporation is a leading transportation and midstream service provider. The company owns and operates an integrated system of pipelines that transport various products derived from natural gas and hydrocarbon liquids produced in western Canada and North Dakota. Share price has appreciated more than 32% to date this year.
Summing Up
Entering the market at the right time helps to maximize portfolio returns. With an unexpectedly large fall in U.S. production, crude prices have given a much-needed breather. As such, we believe it will be prudent to start accumulating these stocks right away.
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Oil at 2016 Highs: 5 Energy Stocks Making Most of the Trend
Oil prices are hovering close to the psychological $50 per barrel mark and we feel the time has come for the long beleaguered sector to come back to life. Since mid-2014, the commodity’s price has been plunging primarily due to excess supply of crude in the global market. However, the wheel of fortune is slowly turning for the space which witnessed the 12-year low mark of $26.05 per barrel for West Texas Intermediate (WTI) crude in mid-February this year. This is remarkable considering the fact that the overall market sentiment usually veers toward profit booking prior to the Memorial Day weekend.
Rebound in the Cards?
The upside in this space is mainly driven by lower production from the non-OPEC space. The International Energy Agency (IEA), the OECD energy watchdog, is also bullish on the demand growth prospects of the trio – India, China and Russia. Per the agency, the triad consumed about 1 million barrels per day more year over year in the first quarter of 2016.
Our bullishness is further compounded by the latest weekly data from the Energy Information Administration (EIA) that revealed a fall in U.S. crude stocks as imports dropped and refineries cut output. The optimism was also echoed by the American Petroleum Institute (API) – the largest oil industry association in the U.S.
As a result, investors' hopes were rekindled on oil and the commodity, which is showing overall improvement after touching the lowest point in mid-February. Also, the domestic oil count stopped the southward march last week when it stopped a steady eight-week fall, as revealed by Baker Hughes Inc. .
We feel the correction in rig count is a blessing in disguise for the beleaguered energy space. This is due to the simple fact that over the past decade, the space has seen a mammoth rise in drilling and production related capacities. This resulted in an invariable rise in production levels. However, the correction in rig count clears the path for stability in the space.
Recovery at the Right Time
The current change in demand-supply dynamics put energy players on radar of investors long awaiting a lift in the fortunes of the space. So long, the sector was ravaged by falling realizations from upstream operations which dragged down the overall picture. The downfall continues to affect the performance of even the largest players in the space like Royal Dutch Shell plc which recently announced the axing of another 2,200 jobs globally in 2016.
Now What?
Now, investors can only hope that the decline in the production level does not end up being a mirage. After all, the entire diminishing inventory overhang has been a key part of our favorable view of the oil space this year.
We however did not foresee the unplanned supply disruption out of Nigeria and Canada, but those are temporary in any case and will eventually be back online. But it’s reduced volumes from the U.S. shale basins purely on economic ground that are likely to be the more enduring cure for the oil market’s supply problems. Production declines from the shale basins have proved to be a lot slower than many of us had envisioned, but it’s happening nevertheless and the trend is expected to only accelerate in the coming days despite the commodity’s recent favorable momentum.
On a final note Wall Street giant Citigroup Inc. (C - Free Report) upped the ante by pushing WTI to $61 per barrel by year-end 2017.
Top Stocks Rallying with Crude
A number of energy stocks saw their prices head north along with an uptrend in the prices of commodities they deal with. Below we highlight five such energy stocks that are gaining. Each of these stocks carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy).
Contango Oil & Gas Company
Houston, TX-based, independent energy company Contango Oil & Gas Company is engaged in the acquisition, exploration, development, exploitation and production of crude oil and natural gas offshore in the shallow waters of the Gulf of Mexico and in the onshore Texas Gulf Coast and Rocky Mountain regions of the United States. The upstream energy operator’s shares have shot up roughly 86.3% year to date.
Sanchez Energy Corporation (SN - Free Report)
Sanchez Energy Corporation is an independent exploration and production company focused on the acquisition and development of unconventional oil and natural gas resources in the onshore U.S. Gulf Coast. The company’s main current focus is on the Eagle Ford Shale in South Texas and the Tuscaloosa Marine Shale. The stock has jumped 80.3% to date this year and has surprised earnings to the upside in three of the last four quarters.
Rose Rock Midstream, L.P.
Headquartered in Tulsa, OK, Rose Rock Midstream, L.P. is a midstream energy partnership. The partnership provides crude oil gathering, transportation, storage and marketing services with the majority of its assets strategically located in or connected to the Cushing, Oklahoma crude oil marketing hub. The stock has jumped 58.1% year to date.
McDermott International Inc.
McDermott is a leading provider of integrated engineering, procurement, construction and installation (EPCI) and module fabrication services for upstream field developments worldwide. The company delivers fixed and floating production facilities, pipelines, installations and subsea systems from concept to commissioning for complex Offshore and Subsea oil and gas projects. The company has seen a 40% spike in its share price to date.
Pembina Pipeline Corporation (PBA - Free Report)
Calgary-based Pembina Pipeline Corporation is a leading transportation and midstream service provider. The company owns and operates an integrated system of pipelines that transport various products derived from natural gas and hydrocarbon liquids produced in western Canada and North Dakota. Share price has appreciated more than 32% to date this year.
Summing Up
Entering the market at the right time helps to maximize portfolio returns. With an unexpectedly large fall in U.S. production, crude prices have given a much-needed breather. As such, we believe it will be prudent to start accumulating these stocks right away.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>