Global oil demand witnessed trying times recently due to the Coronavirus pandemic that put China on lockdown and sent ripples of distress through financial markets. Rising tensions over oil supply in the South American and African regions also induced volatility in global oil prices.
However, recent developments gave oil prices a rather sharp uptick, prompting oil futures to hit the highest settlement in almost three weeks on Feb 19.
West Texas Intermediate crude for March delivery rose $1.24 (2.4%) to settle at $53.29 a barrel on the New York Mercantile Exchange after closing Tuesday’s session witnessing no change. April Brent crude gained $1.37 (also 2.4%) to reach $59.12 a barrel on ICE Futures Europe.
China’s Rate Cut to Boost Oil Demand
Of the many reasons that drove oil prices is Chinacutting its loan prime rate (LPR) in a bid to boost its economy despite the deadly Coronavirus outbreak. The 1-year LPR was lowered by 10 basis points and the 5-year LPR witnessed a 5 basis points reduction.
This development is expected to raise demand for oil in the Asian country, which has been weak because of the prevalent pandemic. After all, China is the world’s second biggest oil consumer and any disruption in the country’s demand affects global oil prices.
Will US Sanction of Russian Oil Giant Hurt Crude Supply?
On Feb 18, the United States imposed tough economic sanctions on the Russian company Rosneft Trading, a subsidiary of the Russian state-controlled Rosneft Oil company, that operates in Venezuela and kept President Nicolás Maduro’s government buoyant.
According to The New York Times, the company exports about two-thirds of the country’s oil, an act Treasury Secretary Steven Mnuchin coined as the “looting of Venezuela’s oil assets by the corrupt Maduro regime.”
Although the sanctions aren’t expected to affect the global financial markets much but the repercussions could deal a heavy blow to Venezuela’s economy. The country’s oil exports have been in the line of fire ever since the Trump administration began a campaign in 2019 to put pressure on Maduro for quitting his post, following his broadly disputed re-election in May 2018.
Given that China, which is the world’s largest crude oil importer, is already providing a stimulus to its economy, oil demand in the country should rebound in the near future. In such a scenario, trimming Venezuela’s 700,000 barrels of daily oil input could enable the country make its presence felt in the global oil market.
Will OPEC+ Slash Oil Production Ahead?
The Organization of the Petroleum Exporting Countries (OPEC) along with non-OPEC members (collectively known as OPEC+) is set to meet in Vienna on Mar 6, per the confirmation to Reuters by Russia’s deputy energy minister Pavel Sorokin.
Since Jan 1, 2020, OPEC+ instated an agreement to cut its oil production by 1.7 million barrels per day (bpd) while Saudi Arabia also agreed to decrease production by 400,000 bpd. If the OPEC+ follows the oil production cuts, oil prices could continue to scale higher.
Libyan Oil Ports Close Amid Conflict
The unrest in Libya brought about harrowing times for the country and its oil reserves. As Libya’s combatants prepare themselves for a long conflict amid the arrival of advanced foreign artillery and fighters, eastern factions in the country sealed its oil ports while rival alliances fight over revenues from Africa’s largest petroleum reserves, per Reuters.
This clash to control the country’s oil wealth not only threatens to fuel its raging unrest but also limit the export of oil, thus impacting oil revenues and supply alike.
As Oil Prices Soar, These 3 Stocks Are Poised to Gain
We therefore hand-picked three oil stocks that are well-positioned to gain ahead on the back of the aforementioned factors, all stocks carrying a Zacks Rank #1 (Strong Buy) or 2 (Buy).
RGC Resources, Inc. RGCO is an energy services company. It markets and distributes natural gas to residential, commercial and industrial customers in Roanoke, VA, and in the localities nearby. The Zacks Consensus Estimate for RGC Resources’ current-year earnings has moved 9.7% north in the past 60 days. The company sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Hess Corporation HES is an exploration and production company. It explores, develops, produces, transports and markets crude oil, natural gas liquids and natural gas, etc. The Zacks Consensus Estimate for Hess’ current-year earnings has moved 84.6% north in the past 60 days. The company carries a Zacks Rank #2.
Marathon Oil Corporation MRO is an energy company engaged in the exploration, production and marketing of crude oil and condensate, natural gas liquids and natural gas etc. The Zacks Consensus Estimate for Marathon Oil’s current-year earnings has moved 76.9% north in the past 60 days. The company carries a Zacks Rank of 2.
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