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Hurricane Florence, Iran Fears Boost Oil Prices: 5 Picks

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The U.S. East Coast, particularly the Carolinas, is bracing itself for what could be the worst hurricane in nearly three decades. Hurricane Florence, a Category 4 storm, is likely to make landfall by early Friday. With smaller storms like Tropical Storm Isaac likely to follow in its wake, fuel demand is experiencing an increase. These storms could also disrupt production and refining activities significantly.

But the factor providing a firmer basis to oil prices are the sanctions imposed on Iran. It is now clear that when these measures take effect in November, they could end up removing a significant quantum of Iran’s oil supplies. Some experts believe that this could potentially drive prices to above $100 a barrel. Adding oil stocks to your portfolio makes for a smart choice at this point.

Hurricane Florence Boosts Fuel Purchase

With Hurricane Florence on track to make landfall later this week, fuel purchases have received a boost. A million people are likely to be affected and they have been asked to fill up their fuel tanks and evacuate areas in the path of the storm. This is likely to lead to a considerable increase in pump prices.

Consequently, on Sep 11, WTI crude prices increased by $1.71 or 2.5% to hit $69.25 a barrel, the highest close in a week. Brent crude advanced by $1.69 or 2.2% to touch $79.06 a barrel, the highest close for a forward monthly contract since Jun 29.

Colonial Pipeline, Gulf of Mexico Operations to be Affected

The storm could also lead to flooding and power outages in areas close to the Colonial pipeline, leading to its closure. Though most of North Carolina’s refineries are located inland, this is the main line which transports gasoline and diesel from refineries located in the northeast.  

Several smaller storms, which are slated to hit U.S. shores in the next few days, are potentially more alarming. Tropical Storm Isaac could disrupt Mexican oil operations in the Yucatan. It could even move north into the Gulf of Mexico, impacting refining and production operations in the region.  

Iran Sanctions Could Boost Prices Above $100

What provides an even firmer basis for the rise in crude prices are President Trump’s impending sanctions on Iran. Market watchers think that they could successfully remove a significant volume of the country’s exports from the market in November, the month during which they are scheduled to take effect.

With Japan and South Korea reducing their Iranian offtake to zero, this could indeed be the case. In fact, both these countries have decided to purchase more U.S. crude. According to Fereidun Fesharaki of FACTS Global Energy, these sanctions have the potential to boost prices to above $100 per barrel.

Currently, Iran is one of the largest exporters of oil on a global basis. Fesharaki feels that other producers would not be able to fill up the void created once Iran’s oil exports are stopped completely. U.S. shale producers are also operating at maximum capacity and would be unable to boost supplies appropriately.

Our Choices

The arrival of Hurricane Florence has boosted prices at the pump significantly. If this storm and several others slated to follow it move into the Gulf of Mexico, U.S. crude supplies could be drastically affected. What is providing a firmer and more secular basis to price rise are impending sanctions on Iran. Some analysts believe that they could boost oil prices beyond $100 a barrel.

This is why it makes sense to pick up select oil stocks at this time. We have narrowed our search to the following stocks based on a good Zacks Rank and other relevant metrics.

Oasis Midstream Partners LP (OMP - Free Report) owns, develops, operates and acquires a diversified portfolio of midstream assets primarily in North America.

Oasis Midstream Partners has a Zacks Rank #1 (Strong Buy). The company’s expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 2.2% over the last 30 days.

TC PipeLines, LP (TCP - Free Report) is a master limited partnership (MLP), with interest in eight pipeline systems.

TC PipeLines’ expected earnings growth for the current year is 20.4%. The Zacks Consensus Estimate for the current year has improved by 1.5% over the last 30 days. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Phillips 66 (PSX - Free Report) is a diversified energy manufacturing and logistics company with chemicals, midstream, marketing and specialties, and refining businesses.

Phillips 66 has a Zacks Rank #2 (Buy). The company’s expected earnings growth for the current year is 80.6%.  The Zacks Consensus Estimate for the current year has improved by 4.5% over the last 30 days.

Chaparral Energy, Inc. (CHAP - Free Report) engages in oil and natural gas exploration and production.

Chaparral Energy has a Zacks Rank #2. The company has expected earnings growth of 25.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 14.7% over the last 30 days.

Northern Oil and Gas, Inc. (NOG - Free Report) is an exploration and production company. Northern Oil's core area of focus is the Williston Basin, specifically the Mountrail County, North Dakota area Bakken Play.

Northern Oil and Gas has a Zacks Rank #2. The company’s expected earnings growth for the current year is more than 100%.  The Zacks Consensus Estimate for the current year has improved by 5% over the last 30 days.

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