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5 Oil Stocks to Buy on Probable OPEC Deal Extension

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The Vienna OPEC meeting is imminent and the market is rife with speculation about the probable extension of the production cut deal. The November accord succeeded to recover the oil prices from the historical lows hit in Feb 2016. However, the crude market remains oversupplied and the need to extend the agreement is of utmost importance to reduce the supply glut.

In the meantime, leading non-OPEC oil producer Russia and OPEC leader Saudi Arabia held discussions to extend the previous deal, which led to oil prices moving north.

Thus, it may now be the right time to include some prospective energy stocks in your portfolio. Let’s delve deeper to analyze the factors that make investment in the space a good idea at the moment.

OPEC’s Historic Deal

On Nov 30, 2016, OPEC signed a deal to cut oil production in order to recover crude from the more than two-year slump. Saudi Arabia decided to shoulder most of the output cut, followed by Iraq.

Iran – the country that has the fourth-largest proven oil reserve in the world as per its government – was not subjected to the deal. This is because the country was exempted from the sanctions last year, following the historic nuke deal signed with superpowers like U.S., Russia, Britain, Germany, France, China and the EU on Jul 14, 2015, in Vienna.

Along with OPEC, non-OPEC producers like Russia agreed on curbing production. Eventually, oil prices started improving and crossed the $50 per barrel physiological mark.

Producers Comply with the Requirements

Immediately after the signing of the accord, analysts expressed doubts on whether OPEC will keep its side of the bargain.

However, according to a survey by Reuters, OPEC displayed 92% compliance for the month of March.

Russia & Saudi Arabia Support Deal Extension

Russia and Saudi Arabia are in favor of extending the production cut deal through Mar 2018. After a meeting in Beijing, the energy ministers of the two countries concluded that they are ready to take steps to stabilize the oil market and lower the crude inventory level to a five-year average mark.

Hence, both Russia and Saudi Arabia want the deal to be extended and the statement came a little ahead of the OPEC meeting to be held at Vienna, Austria by May 25, 2017. Also, the initiatives taken by Russia and Saudi Arabia have been supported by the oil minister of Kuwait.

Following the event, West Texas Intermediate crude price increased to $49.66 per barrel, almost touching the $50 per barrel physiological mark. Most importantly, according to CNBC, for the first time in two weeks, the commodity crossed the support level of $48.20 per barrel.

Which Energy Stocks Will Gain the Most?

It seems that the oil rally could continue if the deal is extended. However, picking energy stocks with the best prospects remains the main concern. In general, upstream energy companies are likely benefit in case of oil prices increase. The exploration and production players are likely to speed up the production as they will be able to sell the commodity at higher prices. This in turn means more contracts for both drillers and oilfield services players.

Moreover, midstream energy assets like pipeline and storage facilities are required to transport and store the expected higher production.

5 Oil Stocks to Buy

With the help of Zacks Stock Screener we have picked five stocks that have either Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Also, the stocks have a VGM Score of ‘B’ or better. VGM Score, where V stands for Value, G for Growth and M for Momentum, is a comprehensive tool that allows investors to filter through the standard scoring system and pick winning stocks.

Calgary, Alberta-based Canadian Natural Resources Limited (CNQ - Free Report) is engaged in the acquisition, development and exploitation of crude oil and natural gas properties. The company sports a Zacks Rank #1 and has VGM score ‘B.’

We expect year-over-year earnings growth for the company to be 720% for the current year.

Ocean Rig UDW LLC provides offshore drilling services to the exploration and production companies. The company’s ultra-deepwater rigs are capable of operating in the harsh environment.

Currently, the company has a Zacks Rank #2 and has VGM Score ‘A.’

Incorporated in 1959, Houston, TX-based McDermott International Inc. is an engineering and construction company that solely focuses on the offshore oil and gas business.

McDermott sports a Zacks Rank #1 and has VGM Score ‘B’.

C&J Energy Services Inc. – headquartered in Houston, TX – offers services related to completion and production to the energy industry in North America.

The company has VGM Score ‘B’ and a Zacks Rank #2.

Headquartered in Houston, TX W&T Offshore Inc. (WTI - Free Report) is involved in exploration and production of oil resources primarily in the Gulf of Mexico.

The company has VGM Score ‘A’ and a Zacks Rank #2.

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