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Oil Rally in the Cards for 2020: ETF & Stock Picks

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Oil prices displayed a decent run in 2019 with United States Oil Fund, LP (USO - Free Report) and United States Brent Oil Fund, LP (BNO - Free Report) rallying about 29.3% and 32.8%, respectively, so far this year (as of Dec 18, 2019). Fresh OPEC output cut, geopolitical tensions related to an attack on Saudi Arabia’s largest oilfields in September and U.S. sanctions on Iran and Venezuela provided a boost to the commodity.

The upcoming year should begin on a strong note too. The OPEC group and allies inked a deal in mid-December to cut production by 500,000 barrels per day in order to support crude prices from January onward. Both investment banks Goldman Sachs and J.P. Morgan acknowledge the effectiveness of the OPEC output cut. J.P. Morgan, in fact, went on to forecast that the oil market will be in a deficit next year by 200,000 bpd.

Also, ebbing U.S.-China trade tensions, ample policy easing in major developed and emerging economies, less uncertainty related to Brexit could prop up global growth and boost demand for this liquid commodity. IMF expects the global economy to recover in 2020. Global growth is likely to slacken to the lowest level since the global financial crisis this year to 3% but may recover to 3.4% in 2020.

The Fed also hinted at no rate hikes in 2020, which could keep the dollar strength in check. With most commodities priced-in in the greenback, such Fed moves would be beneficial for commodities (read: Fed to Not Hike Rates in 2020: ETF Areas to Shine).

Investors should note that the research firm Goldman Sachs recently upped its 12-month commodity returns projection by 3-6.4%, courtesy of a raised outlook for oil. Over a year’s time, Goldman predicts returns of 9.1% from energy.

Goldman Sachs anaIyst Brian Singer lifted the 2020 price target for Brent crude to $63 and $58.50 for WTI, from $60 and $55.50, respectively. J.P. Morgan’s expectation for the Brent crude oil benchmark is $64.50 per barrel for next year, up from the previous estimates of $59 per barrel.

Having said all, we would like to note that surging U.S. production is still a concern for 2020.U.S. output scaled up to nearly 13 million bpd, labeling the country with the world’s largest crude oil producer tag. However, output growth is decelerating. U.S. producers have cut the number of oil rigs operating for a record 12th month in a row, sidelining 25% of the country’s drilling rigs in the past year, per the service firm Baker Hughes.

How to Earn Profits?

If you want to bet big on the Wall Street bulls, you can definitely invest in energy funds and stocks for returns, at least for the short term.

ETF Picks

United States Brent Oil Fund (BNO - Free Report)

The Brent crude oil looks to track the daily changes in percentage terms of the spot price of Brent crude oil. The fund charges 90 bps in fees (read: Time to Buy Beaten Down Oil ETFs).

InfraCap MLP ETF (AMZA - Free Report)

This MLP ETF is active and does not track a benchmark. It charges 2.40% annually but yields 22.15%. MLPs belong to a favorable Zacks industry (placed at the top 10% of 250industries).

VanEck Vectors Oil Refiners ETF (CRAK - Free Report)

The underlying MVIS Global Oil Refiners Index is a rules-based, modified capitalization weighted index and intends to give investors a means of tracking the overall performance of companies involved in crude oil refining.Oil and Gas - Refining And Marketing industry also hails from a favorable Zacks industry (top 12%).

Stock Picks

Antero Midstream (AM - Free Report)

This Zacks Rank #2 (Buy) provider of integrated and customized midstream services belongs to a favorable Zacks industry (top 29%).

CNX Midstream Partners LP (CNXM - Free Report)

This Zacks Rank #1 (Strong Buy) CNX Midstream Partners LP is a master limited partnership, which owns, operates and develops natural gas gathering and other midstream energy assets, primarily in the Marcellus Shale of Pennsylvania and West Virginia. It yields 10.32% annually and hails from a favorable Zacks industry (top 10%).

Valero Energy Corporation (VLO - Free Report)

The Zacks #2 Ranked Valero Energy Corporation is the largest independent refiner and marketer of petroleum products in the United States. It comes from a favorable Zacks industry (top 11%).

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