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Oil Prices Recover on Supply Concerns: 5 Top-Ranked Picks

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Oil prices surged on Jun 7, as investor concerns prevailed over an impending supply shortage from Iran, gradually declining output from Venezuela and a longer-term picture of tighter supply from OPEC (Oil and Petroleum Exporting Countries) and non-OPEC allies led by Russia.

Notably, oil prices had plummeted on Jun 6, following the U.S. Energy Information Association (EIA) report that domestic crude has registered its lowest finish in almost two months for the week ended Jun 1. Crude oil production touched a new weekly high of 10.8 million barrels a day, which is almost close to making United States the world’s biggest crude oil producer.  

Increase in U.S. oil supply may compel OPEC and non-OPEC allies led by Russia to abide by a global pact on cutting oil supplies until the end of 2018. Investors’ fear of global oil shortage helped crude prices recover yesterday. At this stage, investment in energy stocks engaged in oil production, refining and marketing will be a lucrative option.

Oil Prices Recover

On Jun 7, the WTI crude rose $1.22 or 1.9%, to settle at $65.95 a barrel on the New York Mercantile Exchange. Brent futures for August settlement rose $1.96 or 2.6% to end the session at $77.32 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded $9.29 higher than the WTI.

Supply Concerns From Iran and Venezuela

At present, Venezuela and Iran are the major supply disturbances. Economic instability in Venezuela, its massive debt load, unrest in workforce and hyperinflation will take a severe toll on the country’s oil production till the end of 2018. According to Reuters, the country is embroiled in an oil supply crisis, with a delay of nearly a month in delivering oil to its customers from its main export terminals.

However, problems related to Iran started after the United States withdrew from the nuclear pact and announced plans to re-impose oil sanctions on it. The U.S. government also warned about the possibility of secondary sanctions imposed on European companies that continue to deal with Iran. Research firm Commerzbank reported that several European oil companies have announced plans to withdraw from Iran in order to avoid the risk of U.S. sanctions.

Our Top Picks

Strong international demand for crude oil, a tight global oil inventories and stabilization of oil production level will boost oil price rally in the near term. Consequently it will be a prudent move to invest in good energy stocks. However, picking winning stocks can be a difficult task.

This is where our VGM Score comes in handy. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select the winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.

We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and a good VGM Score. You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows price performance of our five picks year to date.

CVR Refining LP headquartered in Sugar Land, TX, the company is engaged in the refining of petroleum primarily in the United States. It has refining and related logistics assets that operate in the mid-continent region.

CVR Refining has a VGM Score of A. It has expected earnings growth of 255% for the current year. The Zacks Consensus Estimate for the current year has improved by 106.8% over the last 60 days.

Geopark Ltd. headquartered in Santiago, Chile, the company is an explorer, operator and consolidator of oil and gas. It operates primarily in Chile, Colombia, Brazil and Argentina.

Geopark has a VGM Score of A. It has expected earnings growth of 745.2% for the current year. The Zacks Consensus Estimate for the current year has improved by 65.3% over the last 60 days.

Occidental Petroleum Corp. (OXY - Free Report) headquartered in Houston, TX, the company is an international oil and gas exploration and production company with operations in the United States, Middle East and Latin America.

Occidental Petroleum has a VGM Score of B. It has expected earnings growth of 362.9% for the current year. The Zacks Consensus Estimate for the current year has improved by 50.9% over the last 60 days.

Anadarko Petroleum Corp. (APC - Free Report) headquartered in The Woodlands, TX, is one of the world's largest independent oil and gas exploration and production companies. Majority of the company's total proved reserves are located in the United States.

Anadarko Petroleum has a VGM Score of B. It has expected earnings growth of 239.3% for the current year. The Zacks Consensus Estimate for the current year has improved by 59.6% over the last 60 days.

Oasis Petroleum Inc. (OAS - Free Report) headquartered in Houston, TX, is an independent exploration and production company focused on the acquisition and development of oil and natural gas resources.

Oasis Petroleum has a VGM Score of A. It has expected earnings growth of 1,850% for the current year. The Zacks Consensus Estimate for the current year has improved by 69.6% over the last 60 days.

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