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Oil Hits $70 a Barrel After Three Weeks: 5 Top-Ranked Picks

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On Jul 30, oil prices closed above $70 a barrel for the first time in three weeks fueled by global supply concern and strong demand. Notably, supply concerns from Venezuela, Libya and Iran have intensified. Moreover, crude oil supplies from Saudi Arabia and other Gulf countries as well as the North Sea area of the U.K. have been disrupted of late.

Meanwhile, the global demand for petroleum remains firm and is anticipated to grow next year. This will enable the crude price to remain robust in the near term. At this stage, investment in energy stocks engaged primarily in oil explorations will be a prudent move.  

Oil Prices Hits $70 a Barrel

On Jul 30, the U.S. West Texas Intermediate (‘WTI’) crude futures gained $1.44 or 2.1% to settle at $70.13 a barrel. WTI oil prices closed $70 a barrel for the first time since Jul 10. Moreover, WTI crude posted a gain of more than $1 a barrel for the first time since Jun 27.

Likewise, international benchmark Brent crude futures rose 0.9% or 68 cents to $74.97 per barrel on London’s ICE exchange.

Supply Concerns Intensify

At present, combined oil supply from Iran, Libya and Venezuela are at their lowest since January.  Venezuela is plagued with economic instability and its oil production is not anticipated to reach normalcy till the end of 2018. Libya is yet to recover from civil war which drastically reduced its oil productions.

Meanwhile, in May, the United States walked out of the Iran nuclear pact formed in 2015. The Trump administration has threatened all countries with U.S. sanctions if they don’t stop importing oil from Iran by Nov 4.

Moreover, supply from OPEC countries has fallen considerably recently after Saudi Arabia decided to suspend shipments of oil through the critical Bab el-Mandeb Strait following an attack by Yemen-based Houthi rebels on a pair of oil tankers in the Red Sea. Additionally, in the British North Sea, productions in three oil fields have been affected due to a workers strike.

Demand for Crude Oil Remains Firm

Recently, the OPEC estimated that total world oil consumption is anticipated at 98.85 million barrels per day (bpd) in 2018 and expected to increase to 110 million bpd in 2019. Several industry experts pointed that global oil inventories have already returned to its five-year average. However, the demand for oil remains robust.  

In such a situation, OPEC’s decision to increase production by 624,000 bpd will only just compensate the shortage and not result in a production glut.  Additionally, several European oil majors have already started bundling their operations in Iran. This will further intensify oil shortage.

Our Top Picks

Strong international demand for crude oil, tight global oil inventories and stabilization of oil production level will aid oil price rally in the near term. Consequently it will be a prudent move to invest in good energy stocks. However, picking winning stocks can be a difficult task.

This is where our VGM Score comes in Handy. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select the winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.

We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and a VGM Score of either A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows price performance of our five picks year to date.

Northern Oil and Gas Inc.  (NOG - Free Report) is an oil exploration and production company with core area of focus is the Williston Basin. It has a VGM Score of A. Northern Oil and Gas has expected earnings growth of 192.9 % for current year. The Zacks Consensus Estimate for the current year has improved by 17.1% over the last 60 days.

Penn Virginia Corp. is an oil and gas company. It is engaged in exploration, development and production of oil, NGLs and natural gas. It has a VGM Score of B. Penn Virginia has expected earnings growth of 252.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 18% over the last 60 days.

Rosehill Resources Inc.  (ROSE - Free Report) is an oil and gas exploration company producing assets located in Texas and New Mexico. It has a VGM Score of B. Rosehill Resources has expected earnings growth of 1,231.3% for current year. The Zacks Consensus Estimate for the current year has improved by 60.2% over the last 60 days.

Canadian Natural Resources Ltd.  (CNQ - Free Report) is a leading independent oil and natural gas exploration, development and production company. It has a VGM Score of A. Canadian Natural Resources has expected earnings growth of 170.7% for current year. The Zacks Consensus Estimate for the current year has improved by 2.5% over the last 60 days.

PetroChina Co. Ltd.  is engaged in a broad range of petroleum-related activities, including: the exploration, development and production of crude oil and natural gas; refining, transportation, storage and marketing. It has a VGM Score of A. PetroChina has expected earnings growth of 317.4% for current year. The Zacks Consensus Estimate for the current year has improved by 63.7% over the last 60 days.

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