There seems to be no end to the debate on how long the crude market will remain oversupplied. One easy way to fix this problem is a production cut by the major oil producing nations, who are perennially at loggerheads. Their main lookout should be finding ways to restore oil price instead of means to fill up their own pockets. But in practice, this seems almost impossible as each major player is trying to kick others out of the market by pushing oil prices down to the pits.

To add fuel to the concern, The Organization of the Petroleum Exporting Countries (OPEC) and The International Energy Agency (IEA) in their recent reports projected an oversupplied oil market through 2017. Hence, there is no respite to the situation at least in the near term.

Why Crude Will Remain Oversupplied?

Since the middle of 2014, the market is witnessing weakness in commodity prices following an oversupplied oil market. Now, many investors might think that oil has recovered sufficiently from the mid-February 2016 lows but if we take a closer look, the commodity is still way below the mark it was trading at before mid-2014.

Whether big oil producers should restrain output is a question that seems to have found a permanent place on the hot seat. But such a theory can never be put to practice as oil players will continue to compete for market share, keeping the oil weakness behind.

It seems that this oversupplied market will remain intact till 2017 as per the comments given by OPEC, which controls more than a third of the global oil supply, and IEA which is the energy-monitoring body of 28 industrialized countries. Following the comments, West Texas Intermediate (WTI) nosedived more than 3% to $44.90 per barrel.

OPEC Predicts Oversupplied Oil Market: According to the cartel, non-OPEC players that include the U.S., Russia and Norway will go on producing 190,000 barrels a day more oil than anticipated this year. On top of that, next year, production from non-OPEC members will only grow following the start up of Kazakhstan's Kashagan oilfield and the comeback of shale producers in the oil patch. OPEC added that even if its oil output remains steady, its 2017 crude supply will outpace demand by 760,000 barrels a day.

These predictions show that OPEC might not agree to limit oil output when they meet in Algeria from Sep 26 to 28. In other words, when OPEC rivals are projected to produce more than expected, the only way for the cartel to compete for market share is to go on producing.

IEA Predicts Oversupplied Crude Market: The Paris-based agency in its recent monthly report said that it has lowered the forecast of global oil demand by 100,000 barrels a day for 2016 and 200,000 barrels a day for 2017. IEA added that at least till the first half of 2017 the market will remain oversupplied.

Which Energy Company to Buy?

Definitely the price of oil determines the fate of oil energy players. With the expect glut, commodity prices will remain soft and the bearish trend will prevail. Of course, this does not favour upstream and integrated energy players like Halliburton Co. (HAL Quick QuoteHAL - Free Report) , Schlumberger Ltd. (SLB Quick QuoteSLB - Free Report) , Weatherford International plc , Diamond Offshore Drilling Inc. (DO Quick QuoteDO - Free Report) , Transocean Ltd. (RIG Quick QuoteRIG - Free Report) and Royal Dutch Shell plc since their business is highly correlated to oil prices.

However, there is no need to raise the panic alarm. Instead, rely on Zacks to handpick investment gems in the woebegone upstream or integrated energy space. By applying our proprietary screening method, we have found five companies carrying either a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) that oil investors can include in their portfolio.

China Petroleum & Chemical Corp. with its head office in Beijing, China, is one of the largest petroleum and petrochemical companies in Asia. The company is the second largest crude oil and natural gas producer, and the largest refiner and marketer of refined petroleum products in China. The company currently carries a Zacks Rank #2 which implies that the stock will outperform the broader U.S. equity market over the next one to three months.  

Headquartered in Dallas, TX Matador Resources Company (MTDR Quick QuoteMTDR - Free Report) is involved in activities like exploration, development, production and acquisition of oil and natural gas resources in the U.S. The company currently sports a Zacks Rank #1, which implies that the stock will significantly outperform the broader U.S. equity market over the next one to three months.

Houston, TX based Carrizo Oil & Gas Inc. is involved in activities like exploration, development, and production of oil and gas primarily in the U.S. The company carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Incorporated in 1959, Houston, TX based McDermott International Inc. (MDR) is an engineering and construction company, solely focused on the offshore oil and gas business. This Zacks Rank #2 company primarily serves offshore oil and gas field developments worldwide, including front-end design and detailed engineering, the fabrication and installation of offshore drilling and production facilities, as well as the installation of marine pipelines and subsea production systems.

Denver, CO-based QEP Resources Inc. is a leading independent energy company engaged in the exploration, development and production of natural gas, crude oil and natural gas liquids. The company carries a Zacks Rank #2.

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