One thing the oil market downturn has taught investors: nobody has much visibility into the future. So, when you think of something as a clear line of sight one quarter, it can soon be overshadowed by an unforeseen event.

The Unpredictable Nature of Oil Prices

Oil's 2016 journey was marked by sudden sharp sell-offs followed by swift recoveries. However, with crude's wild ride, we saw some big winners — and big losers as well. So essentially, investors with good stock-picking skills made a lot of money, while those who bet on the wrong stocks got absolutely hammered.

By February, prices plunged all the way to a low of $26 per barrel, thanks to the boom in shale oil production and rising output from OPEC. The dramatic slide prompted several analysts to make bold calls on a potential bottom. While some suggested prices might drop as low as $20 a barrel, gloomier estimates called for a sensational $10-per-barrel floor.

But thankfully, none of these bone-chilling forecasts were correct.

A historic OPEC production cut agreement, together with help from non-OPEC producers and slashing investments (in existing and new wells) saw oil prices more than double from their February lows to end the year around $54.

The Recent Sell-Off

For the first two months of 2017, oil prices found themselves locked in a sideways trading range, as the tug-of-war over two powerful, opposing supply narratives continue.

Reports indicated an impressive 90% compliance level from the OPEC producers who pledged output cuts in an effort to tackle the three-year supply glut. However, a burgeoning rig count – pointing to the ever-increasing shale drilling activities – kept prices under check and within a band between $50-$55 a barrel.

And then prices broke below the psychologically important $50 threshold after U.S. government data showed that supplies – building since the beginning of the year – rose to record levels amid an increase in production. At 533.11 million barrels, current crude supplies are up 6% from the year-ago period and are at the highest level since the EIA began keeping records in 1982. Moreover, domestic output has risen to 9.13 million barrels per day, the most since Feb 2016.

Energy Investing is Tricky

As one can comprehend, the commodity is not yet out of the woods and record high inventories amid robust production could mean more pain ahead for energy stocks.

To sum up, even as crude prices continue to make their way up, world oil supply remains in a glut and is likely to remain so through 2017. This might make any oil price strength short-lived.

On the contrary though, the commodity’s recovery to $50, predictably, has had a positive effect on stocks in the sector. In particular, savvy investors might view the price bump as the impetus the stocks need after freefalling for three years. Undoubtedly, still a long way to go, but improving crude prices may have already primed certain oil producers and linked entities for upward momentum.

Follow Expert Opinion  

The uncertainty of oil prices means that the future direction of the commodity’s movement is anybody's guess.

In such troubled times, it might be a wise decision to go ahead with stocks preferred by analysts who have a deep fundamental knowledge and understanding of the industry and its companies.

Stocks with brokerage upgrades are often in for a good day and probably more. Consequently, a downgrade may indicate rough days ahead. Whatever the movement, the market tends to react to it. Also, research shows that stocks with broker rating upgrades outperform those that aren't upgraded and they almost certainly record better results than those stocks that get downgraded.

Here are the Stocks

With the help of our Zacks Stock Screener, we have selected 5 stocks that have been given Strong Buy/Buy rating by 80% or more brokers. A favorable Zacks Rank #1 (Strong Buy) or #2 (Buy), which justifies a company’s strong fundamentals, further adds value to these stocks. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PBF Logistics L.P. : Parsippany, NJ-based PBF Logistics operates refined petroleum products storage and transporting facilities.

Zacks Rank #1

Strong Buy or Buy broker rating: 100%

Pioneer Natural Resources Co. (PXD Quick QuotePXD - Free Report) : An independent oil and gas exploration and production company based in Irving, TX, Pioneer Natural Resources focuses on the Permian Basin in Texas.

Zacks Rank #1

Strong Buy or Buy broker rating: 96.67%

Lonestar Resources US Inc. : Headquartered in Fort Worth, TX, Lonestar is an oil and gas exploration and production company with primary focus on the Eagle Ford Shale in South Texas.

Zacks Rank #2

Strong Buy or Buy broker rating: 100%

Flotek Industries Inc. (FTK Quick QuoteFTK - Free Report) : Headquartered in Houston, TX, Flotek Industries provides a range of products and services to enhance returns for the oil and gas finders.

Zacks Rank #2

Strong Buy or Buy broker rating: 100%

Diamondback Energy Inc. (FANG Quick QuoteFANG - Free Report) : Midland, TX-based Diamondback Energy is an independent exploration and production company engaged in the acquisition, finding and development of unconventional onshore oil and gas properties, with a focus on Permian Basin.

Zacks Rank #2

Strong Buy or Buy broker rating: 80.95%

Bottom Line

For the novice investors, energy market volatility makes investing a precarious and panicky activity. However, the above-mentioned stock picks are expected to be good bets given their top ranks and brokers’ confidence.

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