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5 Incredible Energy Stocks Up More than 60% in 2016
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The energy sector has gone through hard times for more than two years and has sent oil and gas majors to their respective lows. Amid such a situation, despite curbing productions, oil majors were competing each other for their respective shares letting oil prices to go down further.
However, there seems a ray of hope when both OPEC and non-OPEC players have joined hand for curbing output. It fact, this move is arguably the most important step taken this year to restore oil prices. Crude has already started gaining momentum, which is good news for all associated players.
This article is mainly focused towards energy majors that improved considerably year-to-date despite many challenging situations. But before going to the stocks, we need to know how oil and natural gas prices behaved in 2016.
Crude Oil
The year started on a disappointing note with crude prices falling to a 12-year low of $26.21 a barrel in Feb as investors worried about the oversupplied market. The commodity’s collapse threatened the industry’s creditworthiness by hurting cash flows, drying up liquidity and plummeting producer profit margins.
However, indications that supply was easing helped oil prices rebound to $50/barrel mark in early Jun. The surge was driven by outages in Nigeria, Libya, Venezuela and Canada – countries that hold some of the world’s major sources of crude. The upward pressure in oil prices also reflected the U.S. Energy Department's inventory releases that showed crude stockpile builds turning into draws. Things were further helped by a continued decline in U.S. crude production.
With factors like Canadian wildfires, Nigerian outages/disruptions, production issues in Venezuela and a strike by Kuwaiti oil workers vanishing from the market, oil slipped back under $40 in the first week of Aug. A glut of refined products also kept the commodity under pressure.
The volatility in oil prices continued with the benchmark touching the $50 threshold again early Oct, buoyed by government figures that continued to show large drawdowns, while investors betted on commitments by Organization of Petroleum Exporting Countries (or OPEC) and non-OPEC players to slash production targets.
When divisions in the cartel became apparent and the future of the ambitious OPEC announcement looked more and more uncertain, the commodity fell back under $45 only to receive a booster shot.
OPEC & Non-OPEC Players Joined Hand:
In a bold but not unexpected move, the OPEC cartel agreed on Nov 30 to reduce production starting next month. Seen as a desperate bid to put a floor on falling oil prices, the group – led by Saudi Arabia – promised to take 1.2 million barrels a day out of the market.
OPEC's decision to cut oil production was not totally surprising though the magnitude of reduction were deeper than many analysts had expected. The move aims to trim output to 32.5 million barrels per day -- at the low end of a preliminary agreement struck in September.
After a few days, Russia – biggest supplier outside the bloc – and 10 other non-member countries also joined forces with the group and pledged to pump less. As per the first pact between the rivals in 15 years, the non-OPEC producers agreed to pitch in with an additional 558,000 barrels a day of cuts next year.
Natural Gas
Over the last few years, a quiet revolution has been reshaping the energy business in the U.S. The success of ‘shale gas’ – natural gas trapped within dense sedimentary rock formations or shale formations – has transformed domestic energy supply, with a potentially inexpensive and abundant new source of fuel for the world’s largest energy consumer.
With the advent of hydraulic fracturing (or "fracking") – a method used to extract natural gas by blasting underground rock formations with a mixture of water, sand and chemicals – shale gas production is now booming in the U.S. Coupled with sophisticated horizontal drilling equipment that can drill and extract gas from shale formations, the new technology is being hailed as a breakthrough in U.S. energy supplies, playing a key role in boosting domestic natural gas reserves. As a result, once faced with a looming deficit, natural gas is now available in abundance.
The Commodity Slipped to 17-Year Lows Earlier in 2016
With production from the major shale plays remaining strong and the commodity’s demand failing to keep pace with this supply surge, natural gas prices hit 17-year lows of around $1.6 per million British thermal units (MMBtu) in the first quarter. The glut was further exacerbated by lackluster industrial requirement over the past few years.
Rebounded Strongly After Then
Since then, successive below-average builds on the back of warmer temperature across the country followed by the recent start of the withdrawal season, has been cutting into the year-over-year storage surplus. Statistically speaking, the current storage level – at 3.8 trillion cubic feet (Tcf) is up only slightly from last year and is just 5.1% above the five-year average. As a result, natural gas prices have rebounded strongly and doubled from the extreme lows it hit in Mar. The dramatic recovery has helped the commodity stay above the key psychological level of $3 per MMBtu.
Energy Stocks Jump on Improving Oil & Gas Improvement
The fate of energy players are strongly correlated with the prices of oil and natural gas. For upstream companies involved in exploration and production (E&P) activities, the crude and gas improvements are boon for them as they will be able to sell the commodities at higher prices. Oil field services firms and drilling companies are also anticipated to do well as they need to support the E&P companies.
With more upstream operations, there will be more production of the commodities that will call for more gathering and compression activities. Hence the developments are also favorable for midstream energy companies.
Our Choices
Employing our proprietary screening methodology, we have shortlisted five energy stocks that surged at least 60% year-to-date following the above developments and have more room to run. We have only considered firms having more than $1 billion worth market capitalization.
Incorporated in 1959, Houston, Texas-based McDermott International Inc. is an engineering and construction company, solely focused on the offshore oil and gas business.
Based in Calgary, Alberta, Encana Corporation is a focused pure-play natural gas E&P company. It is the second largest gas producer in North America, and holds a highly competitive land and resource position in a number of the region's most promising shale and tight gas resource plays.
The company improved more than 141% and carries a Zacks Rank #2 (Buy).
Based in London, the United Kingdom,Subsea 7 SA (SUBCY - Free Report) is the provider of services related to subsea field development products. The company also offers services related to project management, design & engineering, procurement, fabrication, survey, installation, and commissioning of production facilities on the seabed
Subsea that holds a Zacks Rank #2 has increased nearly 80%.
Oklahoma-based Chesapeake Energy Corporation (CHK - Free Report) is an independent oil and gas company engaged in the acquisition, development, and production of onshore U.S. natural gas resources.
Rice Midstream Partners LP , headquartered in Canonsburg, PA, is involved in gathering and compressing natural gas in the U.S.
The partnership improved more than 75% and carries a Zacks Rank #2.
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5 Incredible Energy Stocks Up More than 60% in 2016
The energy sector has gone through hard times for more than two years and has sent oil and gas majors to their respective lows. Amid such a situation, despite curbing productions, oil majors were competing each other for their respective shares letting oil prices to go down further.
However, there seems a ray of hope when both OPEC and non-OPEC players have joined hand for curbing output. It fact, this move is arguably the most important step taken this year to restore oil prices. Crude has already started gaining momentum, which is good news for all associated players.
This article is mainly focused towards energy majors that improved considerably year-to-date despite many challenging situations. But before going to the stocks, we need to know how oil and natural gas prices behaved in 2016.
Crude Oil
The year started on a disappointing note with crude prices falling to a 12-year low of $26.21 a barrel in Feb as investors worried about the oversupplied market. The commodity’s collapse threatened the industry’s creditworthiness by hurting cash flows, drying up liquidity and plummeting producer profit margins.
However, indications that supply was easing helped oil prices rebound to $50/barrel mark in early Jun. The surge was driven by outages in Nigeria, Libya, Venezuela and Canada – countries that hold some of the world’s major sources of crude. The upward pressure in oil prices also reflected the U.S. Energy Department's inventory releases that showed crude stockpile builds turning into draws. Things were further helped by a continued decline in U.S. crude production.
With factors like Canadian wildfires, Nigerian outages/disruptions, production issues in Venezuela and a strike by Kuwaiti oil workers vanishing from the market, oil slipped back under $40 in the first week of Aug. A glut of refined products also kept the commodity under pressure.
The volatility in oil prices continued with the benchmark touching the $50 threshold again early Oct, buoyed by government figures that continued to show large drawdowns, while investors betted on commitments by Organization of Petroleum Exporting Countries (or OPEC) and non-OPEC players to slash production targets.
When divisions in the cartel became apparent and the future of the ambitious OPEC announcement looked more and more uncertain, the commodity fell back under $45 only to receive a booster shot.
OPEC & Non-OPEC Players Joined Hand:
In a bold but not unexpected move, the OPEC cartel agreed on Nov 30 to reduce production starting next month. Seen as a desperate bid to put a floor on falling oil prices, the group – led by Saudi Arabia – promised to take 1.2 million barrels a day out of the market.
OPEC's decision to cut oil production was not totally surprising though the magnitude of reduction were deeper than many analysts had expected. The move aims to trim output to 32.5 million barrels per day -- at the low end of a preliminary agreement struck in September.
After a few days, Russia – biggest supplier outside the bloc – and 10 other non-member countries also joined forces with the group and pledged to pump less. As per the first pact between the rivals in 15 years, the non-OPEC producers agreed to pitch in with an additional 558,000 barrels a day of cuts next year.
Natural Gas
Over the last few years, a quiet revolution has been reshaping the energy business in the U.S. The success of ‘shale gas’ – natural gas trapped within dense sedimentary rock formations or shale formations – has transformed domestic energy supply, with a potentially inexpensive and abundant new source of fuel for the world’s largest energy consumer.
With the advent of hydraulic fracturing (or "fracking") – a method used to extract natural gas by blasting underground rock formations with a mixture of water, sand and chemicals – shale gas production is now booming in the U.S. Coupled with sophisticated horizontal drilling equipment that can drill and extract gas from shale formations, the new technology is being hailed as a breakthrough in U.S. energy supplies, playing a key role in boosting domestic natural gas reserves. As a result, once faced with a looming deficit, natural gas is now available in abundance.
The Commodity Slipped to 17-Year Lows Earlier in 2016
With production from the major shale plays remaining strong and the commodity’s demand failing to keep pace with this supply surge, natural gas prices hit 17-year lows of around $1.6 per million British thermal units (MMBtu) in the first quarter. The glut was further exacerbated by lackluster industrial requirement over the past few years.
Rebounded Strongly After Then
Since then, successive below-average builds on the back of warmer temperature across the country followed by the recent start of the withdrawal season, has been cutting into the year-over-year storage surplus. Statistically speaking, the current storage level – at 3.8 trillion cubic feet (Tcf) is up only slightly from last year and is just 5.1% above the five-year average. As a result, natural gas prices have rebounded strongly and doubled from the extreme lows it hit in Mar. The dramatic recovery has helped the commodity stay above the key psychological level of $3 per MMBtu.
Energy Stocks Jump on Improving Oil & Gas Improvement
The fate of energy players are strongly correlated with the prices of oil and natural gas. For upstream companies involved in exploration and production (E&P) activities, the crude and gas improvements are boon for them as they will be able to sell the commodities at higher prices. Oil field services firms and drilling companies are also anticipated to do well as they need to support the E&P companies.
With more upstream operations, there will be more production of the commodities that will call for more gathering and compression activities. Hence the developments are also favorable for midstream energy companies.
Our Choices
Employing our proprietary screening methodology, we have shortlisted five energy stocks that surged at least 60% year-to-date following the above developments and have more room to run. We have only considered firms having more than $1 billion worth market capitalization.
Incorporated in 1959, Houston, Texas-based McDermott International Inc. is an engineering and construction company, solely focused on the offshore oil and gas business.
The company currently sports a Zacks Rank #1 (Strong Buy) and increased above 128%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Based in Calgary, Alberta, Encana Corporation is a focused pure-play natural gas E&P company. It is the second largest gas producer in North America, and holds a highly competitive land and resource position in a number of the region's most promising shale and tight gas resource plays.
The company improved more than 141% and carries a Zacks Rank #2 (Buy).
Based in London, the United Kingdom,Subsea 7 SA (SUBCY - Free Report) is the provider of services related to subsea field development products. The company also offers services related to project management, design & engineering, procurement, fabrication, survey, installation, and commissioning of production facilities on the seabed
Subsea that holds a Zacks Rank #2 has increased nearly 80%.
Oklahoma-based Chesapeake Energy Corporation (CHK - Free Report) is an independent oil and gas company engaged in the acquisition, development, and production of onshore U.S. natural gas resources.
Chesapeake having Zacks Rank #2 has jumped 65%.
(Looking for the Best Stocks for 2017? Be among the first to see our Top Ten Stocks for 2017 portfolio here.)
Rice Midstream Partners LP , headquartered in Canonsburg, PA, is involved in gathering and compressing natural gas in the U.S.
The partnership improved more than 75% and carries a Zacks Rank #2.
Where Do Zacks' Investment Ideas Come From?
You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 ""Strong Buy"" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 ""Strong Sells"" and other private research. See the stocks free >>