OPEC and its non-OPEC allies, collectively called OPEC+, have reassured limited Omicron impact on the energy business, leading to a rally in energy stocks.
OPEC+ Decision: Fresh Momentum in Crude Rally
The price of West Texas Intermediate (WTI) crude has touched the $77-per-barrel mark again, marking an improvement of more than 51% over the past year. With coronavirus vaccines being rolled out on a massive scale, and booster doses and antiviral pills proving effective against Omicron, the economy will possibly overcome the recent spike in coronavirus cases. This is brightening up the fuel demand outlook.
The fresh decision by OPEC+ to continue to pump more oil has reassured that Omicron’s effect on fuel demand will possibly be mild. OPEC+ has decided that in February, they will increase their output collectively by another 400,000 barrels a day. The decision of OPEC+ has induced fresh momentum to the crude price rally.
Rig Count to Increase
A favorable crude pricing scenario is likely to tempt some drillers back to the well pad. In its weekly release,
Baker Hughes Company ( BKR Quick Quote BKR - Free Report) reported that the count of rigs engaged in the exploration and production of oil in the United States was 480 for the week through Dec 31, in line withthe prior-week count. Thus, the tally has increased in eight of the prior 10 weeks.
The rotary rig count, issued by Baker Hughes, usually gets published in major newspapers and trade publications. Baker Hughes’ data, issued at the end of every week since 1944, helps energy service providers to gauge the overall business environment of the oil and gas industry. The number of active rigs and its comparison with the prior-week figure indicates the demand trajectory for Baker Hughes’ oilfield services from exploration and production companies.
Production to Jump
Improving oil price, that is aiding the count of rigs to increase, in turn depicting the picture that the upstream business environment will continue to be favorable. This is likely to lead to higher production of the commodity.
In January 2022, total oil production from shale resources in the United States will likely increase by 96,000 barrels per day to 8,438 thousand barrels per day (MBbl/D), per the U.S. Energy Information Administration (EIA). The shale resources comprise Anadarko, Appalachia, Bakken, Eagle Ford, Haynesville, Niobrara and Permian.
Of all the resources, Permian will witness the highest increase in daily oil production next month, according to EIA’s drilling productivity report. In the Permian, EIA projects oil production to rise by 71,000 barrels per day to 5,031 MBbls/D in January 2022.
3 Stocks to Gain
We have zeroed in on three oil stocks that have witnessed a jump in share prices on the recent OPEC+ announcement that Omicron will not damagingly impact fuel demand. These stocks are also well positioned to continue to gain. The stocks currently carry a Zacks Rank #3 (Hold). You can see
. the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
Headquartered in Dallas, TX,
Matador Resources Company ( MTDR Quick Quote MTDR - Free Report) has a strong footprint in the liquid-rich Delaware Basin’s Wolfcamp and Bone Spring plays. Matador Resources has been ramping up production while delivering robust well results across Delaware Basin – a sub-basin of the broader Permian.
Matador Resources expects total oil equivalent production to increase 13% in 2021, securing handsome cashflows amid improving oil price. OPEC+’s recent decision to pump more oil, in anticipation of limited Omicron impact, led Matador Resources to gain more than 10% on Jan 4.
PDC Energy, Inc. ( PDCE Quick Quote PDCE - Free Report) is focusing on significant value creation with a strong presence in the Delaware Basin – a sub-basin of Permian – where the company’s operations spread across roughly 25,000 net acres. Despite the coronavirus pandemic, PDC Energy did pretty well last year and is projecting 2021 free cash flow of more than $900 million.
PDC Energy also focuses on debt reduction. In order to strengthen its balance sheet, PDC Energy is anticipating reducing its debt load by more than 40% in 2021. The recent decision of OPEC+ to pump more oil led PDC Energy stock to gain 6.3% on Jan 4.
Diamondback Energy, Inc. ( FANG Quick Quote FANG - Free Report) is a leading pure-play Permian operator, having a strong footprint in 413,000 net acres in the prolific Midland and Delaware sub-basins. Diamondback Energy raised its 2021 average daily production guidance to 370-372 thousand barrel of oil equivalent per day (MBoE/D) from the prior-guided range of 363-370 MBoE/D. Thus, FANG will generate significant cashflows from higher production and increased crude price.
The recent decision of OPEC+ led Diamondback Energy to gain 6.6% on Jan 4. The Zacks Consensus Estimates for Diamondback Energy’s earnings per share for 2021 and 2022 depict year-over-year increase of 269.7% and 54.9%, respectively.