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Oil prices surged to a three-week high after expectations heightened that OPEC is close to reaching an output cut deal. Speculation is rife that members of the producer bloc are close to an agreement after Nigerian delegate Ibrahim Waya said “everyone is on board.” Waya was speaking on the sidelines of a meeting of OPEC members being held in Vienna. 

Market watchers and experts believe that oil prices will start to trend even higher once such an agreement is concluded. This is why picking oil stocks looks like a smart option at this point.

OPEC Members Discuss Outstanding Hurdles

OPEC members have assembled in Vienna for a two-day meeting to discuss output quotas. These discussions are in preparation for the OPEC ministerial meeting to be held on Nov 30 between member nations as well as the non OPEC oil major Russia. Among the issues which remain unresolved at the moment is Iraq’s demand to be excluded from an output cap agreement.

Other members which have made similar demands include Nigeria, Libya and Iran. All of these countries are, in fact, eager to raise output after bearing the brunt of sanctions or internal conflict. Additionally, Iran and Saudi Arabia have long-standing geopolitical differences that must be set aside in order to come to an agreement.

However, recent comments from top officials of Iran and Iraq have been encouraging in nature. Representatives of member countries have said that progress has been made on outstanding issues. Additionally, members seem to be ready to provide Iran with sufficient latitude on its production volumes.

Goldman, Putin Add to Optimism

On Sunday, Russia’s president Vladimir Putin said that there was a “high probability” that a deal on controlling crude output would be reached at the meeting to be held on Nov 30. Putin said that Russia would act in consonance with the expectations of OPEC members. Freezing crude output “is not an issue” for Russia, he said. Putin’s comments gave an added boost to crude prices on Monday.

Meanwhile, Goldman Sachs (GS) raised its outlook for oil prices for the first two quarters of 2017. The financial major now expects WTI to climb to the $55 mark by this point, higher than the earlier estimates of $45 and $50. Goldman Sachs said that the increasing likelihood of an output control deal between OPEC members had resulted in its new forecast. It now believes that OPEC will announce a short-term reduction to 33 million barrels in a day. Meanwhile, Russia will possibly freeze production levels.

Our Choices

OPEC members seem to be inching close to an agreement on production levels in Vienna. Meanwhile, Russia’s president has made encouraging comments in this regard. Also, Goldman Sachs believes there is an increasing likelihood that a deal will finally be reached.

This will put to an end to months of speculation and missed chances and provide the much needed lifeline to oil prices. Against this backdrop, adding stocks from this sector to your portfolio makes good sense. However, picking winning stocks may prove to be difficult.

This is where our VGM score comes in. 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 winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score. 

McDermott International, Inc. (MDR - Free Report) is an engineering and construction company, solely focused on the offshore oil and gas business.

McDermott International has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of 34.8% for the current year. Its earnings estimate for the current year has improved by more than 100% over the last 30 days.

Ultra Petroleum Corp. is an independent, exploration and production company focused on developing its long life natural gas reserves.

Ultra Petroleum has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by more than 100% over the last 30 days.

Ocean Rig UDW LLC is engaged in providing offshore drilling services to the oil and gas exploration, development and production drilling industry.

Ocean Rig UDW has VGM Score of A. The company has expected earnings growth of 96.4% for the current year. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Transmontaigne Partners L.P. (TLP - Free Report) is a refined petroleum products terminaling and pipeline company.

Transmontaigne Partners has a Zacks Rank #1 and a VGM Score of B. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 20.89, lower than the industry average of 20.99. Its earnings estimate for the current year has improved 5.1% over the last 30 days.

Cypress Energy Partners, L.P. (CELP - Free Report) offers saltwater disposal and other water and environmental services to U.S. onshore oil and natural gas producers and trucking companies.

Cypress Energy Partners has a Zacks Rank #2 (Buy) and a VGM Score of A. It has a P/E (F1) of 9.67 compared with the industry average of 46.18. Its earnings estimate for the current year has improved 24.4% over the last 30 days.

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