For more than three years oil prices have been weak following supply glut and lackluster global demand.
However, in September, the commodity crossed the $50-per-barrel mark after more than five weeks. Higher-than-expected demand and the pledge to cut down supply by leading producers supported the upside.
Crude Rally in September
As per macrotrends, The West Texas Intermediate (WTI - Free Report) crude rose more than 9% through September.
The commodity saw a 12.2% gain in third-quarter 2017, after losing ground for two consecutive quarters this year. Most importantly, this quarterly gain is the highest since the April-to-June quarter of 2016.
Oversupply Concerns Ease
Record OPEC Compliance: On Nov 30, 2016, OPEC signed a landmark deal to curb crude production by 1.2 million barrels a day. Following the footsteps of the cartel, early last December, non-OPEC players headed by Russia decided to cut oil output by 558,000 barrels per day. Hence collectively, crude production has been lowered by 1.8 million barrels a day.
Further, on the May 25 meet, producers from both the sides voted to extend the cut in oil production till the first quarter of 2018. During the Sep 22 Vienna meet, the OPEC and non-OPEC oil producing players declared that their compliance level had touched 116% in August against 94% conformity in 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%.
U.S. Oil Rig Count Declines: Rigs exploring crude in the U.S. resources declined for the first three weeks of September.
Demand Picture Improves
Record Global Demand: According to The International Energy Agency (IEA), global oil demand improved by 2.3 million barrels per day during the second quarter of the year. The year-over-year improvement was the highest since mid-2015. The agency believed that oil demand from both Europe and the United Sates was higher than estimated.
Investors should know that 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 further.
Energy Stocks Rally
The advancement of crude in September was likely beneficial for oil exploration and production companies. Also, probably, firms engaged in manufacturing equipment for oil field drilling and completion activities clinched new contracts.
With the help of our Zacks Stock Screener, one can find prospective energy stocks. In particular, we have shortlisted five companies that have gone up 10% or more during September and have a Zacks Rank #1 (Strong Buy) or 2 (Buy).
5 Stocks to Invest In
Headquartered in Houston, TX, W&T Offshore, Inc. (WTI - Free Report) 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 expect the company to witness year-over-year earnings growth of 146.3%.
Presently, W&T Offshore carries a Zacks Rank #2 and gained 58.9% in September.
Pioneer Energy Services (PES - Free Report) , based in San Antonio, TX, is the leading provider of services related to onshore drilling. The company’s earnings will likely grow almost 46% in 2017.
The firm gained 45.7% in September and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Switzerland-based Transocean (RIG - Free Report) is the world’s largest offshore drilling contractor and leading provider of drilling management services. The drilling player surpassed the Zacks Consensus Estimate in all the prior four quarters with an average positive earnings surprise of 441.5%.
Transocean rose almost 26% in September. The stock has a Zacks Rank #2.
Superior Drilling Products, Inc. (SDPI - Free Report) , headquartered in Vernal, UT, is involved in the manufacturing of drilling equipment. For 2017, we expect the company’s earnings to grow 100%.
This Zacks Rank #2 stock gained 15.1% in September.
Headquartered in Lafayette, LA, PetroQuest Energy is involved in oil exploration activities in the prospective resources in Texas and the Gulf Coast Basin. We expect the company’s 2017 earnings to grow 78.2%.
PetroQuest — a Zacks Rank #2 stock — jumped 20.6% in September.
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