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Can OPEC & Its Allies End Oil's Losing Streak? 5 Top Picks

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On Nov 9, U.S. crude price declined for the 10th straight session, extending its decline into the bear market. In doing so, it erased its gains for the year and posted the longest losing streak in nearly 34 years. A surge in output from prominent producers and a soft outlook for demand exacerbated a selloff fueled by October’s stock plunge.

Now, indications have emerged that a fresh round of output controls could be launched by OPEC and its key allies to counter the drop in prices. Given this backdrop, it still makes sense to bet on oil stocks despite the recent decline in prices.

Longest Losing Stretch in 34 Years

WTI crude lost 48 cents, or 0.8%, on Nov 9 to close at $60.19. At one point, the contract had declined to $59.26, its lowest level in around nine months. WTI had slumped into a bear market in the previous session, losing more than 20% from the four-year high of $76.90 achieved last month.

This year, as of Nov 9, WTI crude is down nearly 0.5%. In contrast, Brent crude is still up 4.5% year to date despite declining in nine of the past 10 sessions. However, Brent crude has lost nearly 19% from its October peak and is nearing a bear market.

Iran Waivers, Output Increases Weigh on Prices

In early October, oil prices had surged to record levels following fears that U.S. sanctions on Iran would sizeably reduce crude supplies. However, the Trump administration has granted exemptions to eight countries, significantly reducing the impact of such sanctions. Additionally, the output of leading oil producers, including the United States, Russia and Saudi Arabia, are hovering near record levels.

Other key oil producers are also ramping up production. Meanwhile, a preliminary reading released last week suggests that crude production in the United States has hit an all-time high of 11.6 million barrels per day (bpd). Also, U.S. rig count increased by 12 from last week, the largest increase since end May, per Baker Hughes (BHI).

Major Producers Mulling Output Cuts

Given this backdrop, the Joint Ministerial Monitoring Committee (JMMC) meeting of OPEC and some of its allies held in Abu Dhabi this weekend assumed greater importance. Ahead of the meeting, Saudi Arabia's Energy Minister Khalid al-Falih said that Saudi Arabia was planning to cut oil supplies by 0.5 million bpd in December.

This cut will result in a drop in global oil supply by around 0.5%. Meanwhile, a Kuwaiti official stated on Monday that major oil producers had “discussed a proposal for some kind of cut in (crude) supply next year” over the weekend.

Details, were, however, not forthcoming. Iraq, OPEC’s second-largest producer has hinted that it will favor such a move. Subsequently, WTI crude futures increased 1.6% to $61.15 per barrel on Nov 12. Brent crude increased 2% $71.59 per barrel at 07:49 GMT.

Our Choices

Exemptions granted by the United States after its Iran sanctions was one of the primary reasons for the recent decline in crude prices. A ramp up in output by major producers was another major factor for the slump. Now, Saudi Arabia and other key producers are indicating that they may cut output in order to deal with current level of oversupply.

This is why it makes sense to invest in oil stocks even at this point. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. 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 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.

Eni SpA-ADR (E - Free Report) is among the leading integrated energy players in the world.

Eni SpA has a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved by 7.6% over the last 30 days.

Equinor ASA (EQNR - Free Report) is a producer, transporter, refiner and marketer of petroleum and related products on an international scale.

Equinor has a VGM Score of A. The company has expected earnings growth of 56% for the current year.

Enterprise Products Partners L.P. (EPD - Free Report) is among the leading midstream energy players in North America.

Enterprise Products Partners has a VGM Score of B. The company has expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved 10.6% over the last 30 days.

Energen Corporation is a leading oil and natural gas exploration and production company.

Energen has a VGM Score of B. The Zacks Consensus Estimate for the current year has improved 5.3% over the last 30 days.

Phillips 66 Partners LP (PSXP - Free Report) is an owner, operator, developer and acquirer of refined petroleum products and midstream assets.

Phillips 66 has a VGM Score of B. The company has expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved by 8.4% over the last 30 days.  

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