A number of factors are contributing to a rise in global oil prices with WTI crude topping $75/barrel on Tuesday for the first time since 2014. A power outage at a major production facility in Canada, escalating civil unrest in Libya and the enforcement of economic sanctions on Iran all threaten to restrain global supplies at the exact time that the populations of North America and Europe traditionally take to the roads for summer vacations, increasing demand.
Although OPEC increased production in June, pumping 32 Billion barrel/day, an increase of 320,000bpd over May, the Canadian outage decreases global output by even more – 360K bpd – and the most affected area of Libya produce more than 700K bpd, the majority of which could be threatened.
With U.S. oil stockpiles expected to decline by as much as 3 million barrels this week, there’s no sign of oil price relief in sight and several major investment banks now have short-term oil price targets north of $85/barrel.
Three top-ranked producers in areas not affected by the recent supply slump are poised to benefit from rising prices this summer.
Anadarko Petroleum Corporation (APC - Free Report) is also a U.S. company engaged in petroleum and natural gas gathering, processing, treating and transportation. Though it also operates internationally, 86% of Anadarko’s revenues come from the U.S. in Texas, Colorado, Utah and Wyoming.
Anadarko has recently invested in significant new infrastructure projects and expects to have new Regional Oil Treatment Facilities (ROTFs) online and operational later in 2018. The company describes this strategy as “capital-efficient growth, while generating free cash flow to drive the return of capital through shares repurchases, increased dividends and debt retirement.”
Earnings estimates for Anadarko have grown significantly this year and they are now expected to net $2.54/share in 2018, a 75% increase over the estimate of $1.44/share 90 days ago. The stock is a Zacks Rank #1 (Strong Buy).
The Gulf and Abroad
Murphy Oil (MUR - Free Report) operates a diverse portfolio of onshore and offshore oil exploration and production assets. With facilities in the Gulf of Mexico, the Atlantic, Asia and Australia, the company has the opportunity to fill in for lagging global supply from regions not affected by the recent physical and political issues.
After four consecutive earnings beats, MUR has seen earnings estimates rise 68% in the past 90 days from $0.97/share to $1.67/share. Estimates for 2019 have more than doubled in the same period. Murphy Oil is a Zacks rank #1 (Strong Buy) and has a VGM score of “A”.
Canada, Australia and Asia
Vermillion Energy Inc (VET - Free Report) is a Canadian exploration and production company with operations in Western Canada and Europe.
Vermillion is expected to nearly double 2017 earning this year with a Zacks Consensus estimate of $0.96/share. 90 days ago, analysts were expecting a loss of $0.59/share but was revised sharply upward in light of the recent oil price rally, earning VET a Zacks rank #1 (Strong Buy).
Vermillion also pays a 6% annual dividend yield.
Taking Advantage of Global Supply and Demand Issues
Intelligent investors routinely scan the globe for the opportunities presented by geopolitical events. Owning shares in the producers of petroleum products who are not affected by recent developments in the global markets currently represents one of those opportunities.
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