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Oil Rallies Above $50 on Record OPEC Compliance: 4 Picks

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The energy market is again in the spotlight after OPEC and participating non-OPEC oil producers reached the highest ever compliance level with their output cut agreement.

Oil traders have turned bullish on the commodity amid hopes of more upside in the coming months Such is the optimism about oil that leading crude producers, at an OPEC-led committee meeting at Vienna on Sep 22, did not feel the immediate need to go for extension of the production cut deal beyond March 2018. Instead they will wait at least until January to make any further decisions. This showed confidence that the crude glut will likely be cleared within the first quarter of 2018.

Output Cut Maintained in Last OPEC Meeting

On Nov 30, 2016, OPEC signed a landmark deal to curb crude production by 1.2 million barrels per day. Following in the footsteps of the cartel, in early December last year, non-OPEC players headed by Russia also decided to lower oil output by 558,000 barrels per day. Hence, collectively they decided to curb crude production by 1.8 million barrels each day. 

On May 25, producers from both sides voted to extend the cut in oil production until Q1 2018.

Sep 22: OPEC Meet, Record Compliance

During Sep 22 Vienna meet, the OPEC and non-OPEC oil producing players declared that their compliance level touched 116% during August against 94% conformity for July.

Notably, August compliance was the highest since crude producers started complying with the output cut accord. Russia alone conformed to the pact by more than 100%.

Oil Prices Responded Well to Production Cut Deal

The price of crude crossed the $50-per-barrel mark last week. Also, over the prior three months, the commodity jumped more than 15%. Hence, it seems that the producing nations’ output cut deal has solved the crude glut problem to a great extent.

Both OPEC and Russia announced the completion of 50% of their job in reducing excess crude supply in the global market. According to Issam Almarzooq, Kuwait’s Oil Minister, if all the producers can continue to comply with the pact, hopefully the crude glut problem will be solved by March 2018.   

He said that it is impossible to predict now about the extension of the output cut deal; they will decide the need for further extension closer to the end of first-quarter 2018.

Crude to Remain Healthy

Meanwhile, Houston-based oilfield services player Baker Hughes, reported a fall in oil rig count in the United States for three consecutive weeks. Hence, less future U.S production, combined with record compliances by OPEC producers, will likely help crude to maintain the bullish momentum.

Also, the U.S. economy grew at the fastest pace during the April-to-June quarter of 2017 in more than two years. Given the healthy economic picture of the world’s largest crude consumer, demand for oil should improve as well.

Overall, higher crude demand in the domestic market and lower production by major producing countries, should help the commodity stay above $50-per-barrel mark in the coming months.

Which Energy Stocks to Gain?

The advancement of crude is likely beneficial for oil exploration and production companies. Also, firms engaged in manufacturing equipment for oil field drilling and completion activities will likely get new contracts.

With more production of the commodity, there will be need for new energy infrastructure assets for transporting and storing of oil.

4 Stocks to Buy

Headquartered in Fort Worth, TX, Lonestar Resources US, Inc. (LONE - Free Report) is an upstream energy firm. The company is involved in exploitation and development of prospective oil resources in the United States. We anticipate the company to post earnings growth of 79.7% for 2017.

Currently, Lonestar sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Headquartered in Denver, CO, TransMontaigne Partners L.P. is a provider of energy infrastructure assets that are used for storing and transporting liquids.

The Zacks #1 Ranked stock is expected to see its earnings grow 29.1% in 2017. Also, the Zacks Consensus Estimate for 2017 earnings has been revised upward over a period of last 60 days.

W&T Offshore, Inc. (WTI - Free Report) , headquartered in Houston, TX, explores and develops oil resources in the U.S Gulf of Mexico. The company surpassed the Zacks Consensus Estimate in each of the last four quarters with an average positive surprise of 586.74%. Also, for 2017, we are expecting the company to witness year-over-year earnings growth of 146.3%.

Presently, W&T Offshore carries a Zacks Rank #2 (Buy).

Superior Drilling Products, Inc. (SDPI - Free Report) is the designer and manufacturer of drilling tools used by the oil explorers. The company posted an average positive earnings surprise of 22.22% over the last four quarters.

The company carries a Zacks Rank #2.

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