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US Economy Recovering Faster Than Expected: Oil Firms to Gain

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President Joe Biden expects Americans to get closer to normal life soon, as early as by the Fourth of July. Thus, more people will soon join offices and travel more, boosting demand for fuel. With fuel demand mostly dictating the fate of energy companies, it seems to be an opportune moment for investors to invest in oil stocks.

Encouraging US Economic Growth Outlook

According to the Organisation for Economic Co-operation and Development (OECD), the U.S. economy will grow 6.5% in 2021. The forecast issued in December was pegged at 3.2%. OECD also lifted its estimate for U.S. economic growth for 2022 to 4% from 3.5%.

Notably, the rollout of vaccines in a massive scale and the stimulus package boosted the economic growth forecast. Biden has outlined a plan to widen the eligibility criteria of coronavirus vaccinations for all adults by May 1. This will likely bring the country very close to normalcy by the Independence Day weekend, Biden added. Notably, the news that Biden has signed the stimulus bill of $1.9 trillion into law has also brightened the country’s economic outlook.

Room for Further Oil Price Recovery

Encouraging outlook for U.S. economic growth has paved the way for further oil price recovery on the back of improving demand for fuel. In fact, the commodity price, which is trading above $65 per barrel (at pre-pandemic levels), has improved significantly since April 2020, when oil was in the negative territory.

Recently, the price of oil jumped to record levels in more than a year after it was decided by OPEC+ (OPEC and its non-OPEC partners) that they will extend most of the oil output cuts till April.

Energy Business to Bounce Back

Rising oil price is definitely a boon for oil explorers and producers. Upstream energy players, in fact, have started returning to shale plays. With exploration and production activities ramping up and a brightoutlook for upstream businesses, energy companies are well-poisedto bounce back from pandemic-lows with room for generating handsome cashflow. This, in turn, islikelytohave paved the way for upstream energy players to reward investors with lucrative dividend payments again.

Notably, two of the major exploration and production companies that recently announced dividend hikes are Pioneer Natural Resources Company (PXD - Free Report) and EOG Resources, Inc. (EOG - Free Report) . Another important news that shows companies are returning capital back to shareholders is ConocoPhillips’ (COP - Free Report) recent announcement for the resumption of its share repurchase program.

Stocks to Buy

Given that the bright U.S. economic outlook signals higher fuel demand, investors are likely to gain lucrative returns from energy sector investments. However, it would be a daunting task to pick the right company where our proprietary stock screenercomes in handy. Based on the screening criteria the companies will either carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Headquartered in Dallas, TX, Matador Resources Company (MTDR - Free Report) has a strong footprint in liquid-rich Delaware Basin’s Wolfcamp and Bone Spring plays. Thus, the crude rally will likely aid the company’s bottom line. In fact, the Zacks Rank #1 stock has witnessed upward earnings estimate revisions for 2021 over the past 30 days.

Headquartered in Midland, TX, Diamondback Energy, Inc. (FANG - Free Report) is a pure-play Permian player with presence in more than 347,000 net acres in the Permian. The company has more than 12,300 gross horizontal locations, brightening its production outlook amid the favorable crude pricing scenario. Notably, the Zacks #1 Ranked stock is likely to see earnings growth of 99.7% in 2021.

Pioneer Natural Resources Company, headquartered in Irving, TX, recently announced approval from its board of directors to raise its quarterly cash dividend payout. Importantly, in 2020, the Zacks #2 Ranked company delivered free cashflow of $689 million and the metric will likely improve with the business scenario gradually getting better on rising oil prices. Notably, Pioneer projects free cashflow for 2021 at $2 billion. Thus, the upstream energy company, with a strong presence in the Permian, will likely continue to reward investors with dividend payments.

Headquartered in Houston, TX, CallonPetroleum Company’s (CPE - Free Report) strong presence in the Permian Basin, which is among the country’s most prolific oil plays, is commendable. The company, with a Zacks Rank of 2, is well poised to capitalize on the crude price recovery and has witnessed upward earnings estimate revisions for 2021 in the past 30 days.

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