Oil market volatility in the current price environment is pretty unsettling for most of the energy companies. A supply glut in the global oil market and an economic slowdown that has been dampening the demand outlook are threatening the market for a few months now. Choosing stocks to invest in, given the current price scenario, is not easy as it requires thorough analysis of the market, which we have done for you.
WTI to Average Above $50 in 2019
In the latest short-term energy outlook report, the U.S. Energy Information Administration (EIA) projected Brent price in 2019 to average $61 per barrel, which is much lower than October highs of above $80. However, considering current crude price level of $54.60, the estimated price level is indicative of an upside potential. Similarly, WTI crude, the U.S. benchmark, is currently hovering just above $46 per barrel level, which is expected to average $54 in 2019.
OPEC’s Efforts to Arrest Output Rise
In early December, the OPEC/non-OPEC members (OPEC+) decided to curb output by 1.2 million barrels per day (BPD) from the highs reached in October, essentially to improve oil prices in the first half of 2019. While OPEC member countries will reduce output by a total of 800,000 BPD, non-OPEC producers will lower production by 400,000 BPD. This is expected to negate the effects of rising production from the United States.
Crude oil production in the United States is on the rise with the support from strong shale activities. Per EIA, oil production in 2017 was 9.4 million BPD and is estimated to average 10.9 million in 2018. In 2019, the average production level is anticipated to rise to 12.1 million BPD, reflecting a year-over-year increase of 1.2 million.
Moreover, the Energy Minister of Russia, Alexander Novak recently stated that the market is expected to witness more stability in 2019. Per Novak, an OPEC+ meeting in addition to the scheduled ones is also possible, if the price movement requires. The organization earlier projected demand to increase 1.29 million BPD in 2019. Additionally, the low price level can trigger a rise in demand, which can change the outlook in the long run. This may result in a fall in global supply glut.
Keeping the possibility of higher oil prices in mind, we believe that these energy stocks will outperform the market and offer plenty of upside potential, as these have a Zacks Rank of either #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. Moreover, each of the companies has a market capitalization of more than $1 billion, making them large enough to stay strong even in the face of unfavorable events.
Den Helder, the Netherlands-based Frank's International N.V. (FI - Free Report) is a provider of engineered tubular services to the oil and gas industry all around the globe. It currently has a Zacks Rank #1. For full-year 2019, the company’s bottom line, which has witnessed four upside revisions in the past 60 days, is expected to surge more than 55% year over year.
Houston, TX-based Shell Midstream Partners, L.P. (SHLX - Free Report) is a midstream energy company. For 2019, its bottom line, which has witnessed three upside revisions over the past 60 days, is expected to grow 27.7% year over year. The company currently sports a Zacks Rank #1.
Another Houston, TX-based midstream energy company is Enterprise Products Partners L.P. (EPD - Free Report) . Its extensive network of pipeline spreads across almost 50,000 miles. The pipelines carry crude oil, natural gas, NGL and refined products. Notably, its bottom line for full-year 2019 is expected to increase 6.5% year over year. It currently has a Zacks Rank #2.
Calgary, Canada-based TransCanada Corporation (TRP - Free Report) is a North American midstream energy company. It currently has a Zacks Rank #2. For full-year 2019, the company’s bottom line, which has witnessed three upside revisions in the past 60-day period, is expected to grow more than 3.4% year over year. The company beat the Zacks Consensus Estimate for earnings in the last four reported quarters, with average positive surprise of 19%.
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