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4 Oil Stocks to Buy on Production Cuts, Lower Inventory

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The recent spike in oil prices is a result of certain favorable developments. First, OPEC+ (which includes OPEC members and Russia) decided on more oil production cuts. Second, the Energy Information Administration's (EIA) Weekly Petroleum Data revealed a significant drop in U.S. crude stockpiles.

In addition, oil prices are expected to rise further as the phase-one U.S.-China trade deal is reportedly still being negotiated. China, which is the second-largest consumer of global crude oil, would enjoy higher demand, in case the deal comes through. This would certainly boost oil prices.

Let us, thus, take a look at some oil stocks that could benefit from these favorable events.

OPEC+ Votes for More Oil Production Cuts

West Texas Intermediate crude for January delivery settled at $58.43 a barrel on the New York Mercantile Exchange on Dec 5. February Brent crude added 0.6% to settle at $63.39 a barrel.

On Dec 5, OPEC+ recommended cutting production by 500,000 bpd to the already existent cuts of 1.2 million bpd, which would take production to 1.7 million barrels per day (bpd). A cut of 1.7 million bpd is about 1.7% of global supply.

According to Russian Energy Minister Alexander Novak, the deeper cuts would be implemented through the first three months of 2020 and followed through if each member country complies with its current production quota. It remains to be decided as to how each country would implement a cut.

Slump in Oil Inventories Push Up Oil Prices

However, the possibility of the OPEC+ production cuts isn’t the only factor. A fall in U.S. crude oil stockpiles is also boosting crude oil prices at present.

The EIA's Weekly Petroleum Data for the week ending Nov 29, 2019, indicated a more-than-expected dip in oil inventories, which ended several consecutive weeks of builds.

The report cited that commercial crude inventories decreased by 4.9 million barrels last week from the week ended Nov 22, 2019. U.S. crude oil inventories are about 3% above the five-year average for this time of year, at 447.1 million barrels. The reasons behind the reduction in stockpiles last week were heavy refining activity and lower imports.

Oil Explorers and Producers to Gain Big

We have, therefore, picked four companies for you, all of which primarily deal with the exploration and production of oil. All of these stocks carry a Zacks Rank #2 (Buy).

Frank's International N.V. (FI - Free Report) is a provider of various engineered tubular services for oil and gas exploration and production and oilfield services. The Zacks Consensus Estimate for the company’s current-year earnings has risen 6.7% over the past 60 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Viking Energy Group, Inc. is an independent exploration and production company. It mostly focuses on the acquisition and development of oil and natural gas. The Zacks Consensus Estimate for the company’s current-year earnings has risen 22.2% over the past 60 days.

Parker Drilling Company (PKD - Free Report) is a provider of contract drilling and drilling-related services. The company has two business lines, namely Drilling Services and Rental Tools Services. The former business line drills oil, natural gas and geothermal wells, and operates barge rigs for drilling oil and natural gas. The Zacks Consensus Estimate for the company’s current-year earnings has risen 56.9% over the past 60 days.

U.S. Well Services, Inc. (USWS - Free Report) operates as an oilfield service company. It offers hydraulic fracturing services to the oil and natural gas exploration and production companies. The Zacks Consensus Estimate for the company’s current-year earnings has risen 12.2% over the past 60 days.

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