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Oil Prices Surge but Energy Investors Aren't Happy: Here's Why
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The decision of OPEC+ members to not boost crude supply for the next month, in contrast to market anticipation, sent oil price soaring. WTI Crude price — the American benchmark — is currently hovering around $65 per barrel, while Brent Crude surged above the $70 per barrel mark, at least for a brief period of time. This can excite investors in the upstream companies as high crude prices can boost the profit level, at least in the short term. However, the resultant long-term scenario might not be rosy for the companies.
High crude prices during the quarter can lead to a sequential hike in profits for companies like ConocoPhillips (COP - Free Report) and Hess Corporation (HES - Free Report) that have massive international upstream presence. Moreover, countries with oil-dependent budgets will consider the current price environment favorable. However, economies with high oil-importing activities will face the brunt of the price hike. Economic growth of nations like India and China, which are two of the major oil demand growth drivers, can choke due to the higher prices.
Affected Parties
The economies recovering from the coronavirus pandemic can counter inflationary pressure due to the higher oil prices. Countries like the United States will have to pay higher prices for imported goods. The immediate effect of the soaring price will be a jump in fuel prices, which in turn will affect consumption-led recovery in oil demand. The environment is likely to create boundaries for consumers in a price-sensitive market. Moreover, high crude prices imply increased input costs for refining and marketing companies like PBF Energy Inc. (PBF - Free Report) , Valero Energy Corporation (VLO - Free Report) and others. Also, companies with massive downstream presence like Chevron Corporation (CVX - Free Report) and BP plc (BP - Free Report) — each carrying a Zacks Rank #3 (Hold) — might see lower profits from their refineries. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Importantly, fuel demand is far below the pre-pandemic level, with fewer travelers on the road and reduced air traffic. The massive slump in jet fuel demand significantly affected downstream companies in 2020. Even though overall fuel demand is slowly recovering at the moment, higher crude prices can result in lower downstream profits.
Final Thoughts
Hence, the current rise in oil prices can affect the recovery process, given that the demand is improving at a slow pace. Although crude prices jumped due to OPEC+ members’ production curtailments, the sustainability of the same is being questioned. Furthermore, the recovering global energy demand will be constrained as some major economies will take a hit due to rising prices. This, in turn, will affect the potential rise in sustainable demand for the commodity for upstream companies and oil producing countries.
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
Image: Bigstock
Oil Prices Surge but Energy Investors Aren't Happy: Here's Why
The decision of OPEC+ members to not boost crude supply for the next month, in contrast to market anticipation, sent oil price soaring. WTI Crude price — the American benchmark — is currently hovering around $65 per barrel, while Brent Crude surged above the $70 per barrel mark, at least for a brief period of time. This can excite investors in the upstream companies as high crude prices can boost the profit level, at least in the short term. However, the resultant long-term scenario might not be rosy for the companies.
High crude prices during the quarter can lead to a sequential hike in profits for companies like ConocoPhillips (COP - Free Report) and Hess Corporation (HES - Free Report) that have massive international upstream presence. Moreover, countries with oil-dependent budgets will consider the current price environment favorable. However, economies with high oil-importing activities will face the brunt of the price hike. Economic growth of nations like India and China, which are two of the major oil demand growth drivers, can choke due to the higher prices.
Affected Parties
The economies recovering from the coronavirus pandemic can counter inflationary pressure due to the higher oil prices. Countries like the United States will have to pay higher prices for imported goods. The immediate effect of the soaring price will be a jump in fuel prices, which in turn will affect consumption-led recovery in oil demand. The environment is likely to create boundaries for consumers in a price-sensitive market. Moreover, high crude prices imply increased input costs for refining and marketing companies like PBF Energy Inc. (PBF - Free Report) , Valero Energy Corporation (VLO - Free Report) and others. Also, companies with massive downstream presence like Chevron Corporation (CVX - Free Report) and BP plc (BP - Free Report) — each carrying a Zacks Rank #3 (Hold) — might see lower profits from their refineries. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Importantly, fuel demand is far below the pre-pandemic level, with fewer travelers on the road and reduced air traffic. The massive slump in jet fuel demand significantly affected downstream companies in 2020. Even though overall fuel demand is slowly recovering at the moment, higher crude prices can result in lower downstream profits.
Final Thoughts
Hence, the current rise in oil prices can affect the recovery process, given that the demand is improving at a slow pace. Although crude prices jumped due to OPEC+ members’ production curtailments, the sustainability of the same is being questioned. Furthermore, the recovering global energy demand will be constrained as some major economies will take a hit due to rising prices. This, in turn, will affect the potential rise in sustainable demand for the commodity for upstream companies and oil producing countries.
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
See the 5 high-tech stocks now>>