Oil prices collapsed last month on concerns over growing U.S. supply, falling refinery demand post Hurricane Harvey and more evidence of rising OPEC output. The price drop extends a downbeat tone in crude trade into September following the fifth monthly loss in six months by the futures contracts. To be precise, the commodity lost about 5.9% in August to end the month at $47.23 per barrel.
3 Reasons for Oil's August Misery
Record Shale Output: At the crux of the matter is the rising flood of U.S. shale-driven production. Now at a financial equilibrium, the shale firms are putting more rigs and employees back to work. Throughout the downturn, producers worked tirelessly to cut costs down to a bare minimum and look for innovative ways to churn out more oil from rock. And they managed to do just that by improving drilling techniques.
With these efforts, many upstream companies have repositioned themselves to adapt to the new $50 oil reality and even thrive at those prices. In other words, while OPEC's moves to trim output and rebalance the demand-supply situation has stabilized the market to a large extent, in the process it has incentivized shale drillers to churn out more. As per Energy Information Administration’s (“EIA”) latest inventory release, U.S. production rose to 9.5 million barrels a day - the highest level in more than two years.
OPEC Production Hits a 2017 High: Meanwhile, the producer cartel pumped more oil in July than in June – the fourth straight monthly rise in 2017 – on increasing output from Nigeria and Libya, which are exempt from the deal. The production boost offset improved compliance by other members and took the output tally to 32.9 million barrels a day, within touching distance of the pre-cut levels of December.
The Harvey Effect: As Hurricane Harvey tore through the Texas Gulf Coast, workers in the U.S. oil industry struggled to evacuate production facilities and shut down refineries. This, in turn, triggered the biggest disruption in nationwide energy supplies in years.
The United States has major refining infrastructures along the Gulf of Mexico (“GoM”). According to the EIA, more than 45% of domestic oil refining capacity are located in the GoM.
With deluge and floods in the aftermath of Harvey knocking out a major chunk of domestic refining capacity, crude demand has been significantly curbed. This led to lower oil prices.
A Handful of Companies Defied the Downturn
Even amid the volatile, declining market, some companies have stood firm, indicating investors’ confidence in them. If bought now, these stocks are likely to outperform others and create long-term wealth. However, selecting stocks to buy could be a tricky proposition, especially with oil prices moving like a roller-coaster. One should focus on picking up stocks that have a sound business, good management and is not pricey.
With a wide range of energy firms thronging the investment space, it is by no means an easy task for investors to arrive at stocks that have the potential to deliver attractive returns. While it is impossible to be sure about such outperformers, this is where the Zacks Rank, which justifies a company’s strong fundamentals, can come in really handy.
In particular, we have shortlisted 5 companies that have outperformed oil prices over the past 4 weeks, and have a Zacks Rank of #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Headquartered in Fort Worth, TX, Range Resources Corporation (RRC - Free Report) is an independent oil and gas company, engaged in the exploration, development and acquisition of oil and gas properties primarily in the southwestern, Appalachian and Gulf Coast regions of the U.S.
The 2017 Zacks Consensus Estimate for this Zacks Rank #1 company is 48 cents, representing some 1,487.2% earnings per share growth over 2016. Next year’s average forecast is 64 cents, pointing to another 34.6% growth.
Range Resources has gained 6.2% in the past four weeks.
London-based Subsea 7 S.A. (SUBCY - Free Report) is a leading oilfield contractor engaged in the designing, procurement, building, installation, and servicing of a range of offshore surface and sub-surface equipment for the oil and gas industry.
Over 60 days, the #1 Ranked firm has seen the Zacks Consensus Estimate for 2017 and 2018 increase 31.4% and 17.4%, to $1.55 and $1.08 per share, respectively.
Subsea 7 shares have advanced 1.9% in the past four weeks.
Calumet Specialty Products Partners L.P. (CLMT - Free Report) , with a Zacks Rank of 2, is a major North American producer of high-quality, specialty products and fuels.
This Indianapolis, IN-headquartered partnership surpassed estimates in each of the last three quarters.
Calumet Specialty’s units have advanced 52.3% in the past four weeks.
Willbros Group Inc. (WG - Free Report) is an engineering and construction company, focused on the oil and gas business.
The 2017 Zacks Consensus Estimate for this Zacks #2 Ranked company is a loss of 11 cents, representing some 78.4% improvement over 2016. Next year’s average forecast is 14 cents, pointing to another 227.3% growth.
Willbros shares have gained 10.5% in the past four weeks.
Par Pacific Holdings Inc. (PARR - Free Report) , based in Houston, TX, is a Zacks Rank #2 diversified energy player that operates in 4 segments: Refining and Distribution, Retail, Commodity Marketing and Logistics, and Natural Gas and Oil.
The company has an excellent earnings surprise history. It surpassed estimates in each of the last three quarters.
Par Pacific shares have advanced 1.8% in the past four weeks.
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