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Oil Hits Historic Low on Overwhelming Stockpiles: 6 Winners
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On Apr 20, U.S. crude oil price plunged more than 190% for the month of May in a matter of a few hours, hitting a historic low. The coronavirus pandemic continues to crush demand while rising stockpiles overwhelm storage facilities across the country.
Measures like lockdowns to curb the spread of the deadly virus continue to crush fuel demand, leaving behind stockpiles that countries are struggling to store. However, declining oil prices might prove to be a blessing in disguise for some companies.
Oil Price Hits Historic Low
The price on the May futures contract for the West Texas Intermediate crude that is due to expire on Tuesday finished down $55.90, or 306%, entering negative territory at minus $37.63 a barrel. This is the first time that crude oil prices have fallen below zero. The one-day plunge is also the largest on record since New York Mercantile Exchange opened oil features trading in 1983.
This means sellers will now actually have to pay buyers to take crude oil off their hands. In fact, the Department of Energy is now contemplating paying domestic oil producers to take the responsibility of storing crude oil in the ground. Also, some companies in the oil patch are planning to build large tank farms to store crude oil for sale later when prices rebound.
Why Oil Price Entered Negative Territory
Black gold started taking a hit since coronavirus infections peaked and governments started imposing lockdowns. With a few people out on the streets travelling and airlines operating lesser number and flights, demand for fuel has been shrinking. Lack of storage combined with production — that is still above world oil requirement — led to a collapse in oil price as demand dropped 30% in just a couple of months.
Although OPEC and its allies last week reached a deal to slash output, it has failed to put a check on the decline in oil prices. OPEC+ unanimously agreed on cutting oil production to 9.7 million barrels per day, slightly below the proposed 10 million barrels mark. Per the deal, OPEC will start cutting production to 7.6 million barrels per day after June till the end of the year. Following that, it will cut production to 5.6 million barrels a day till April 2022.
The historic low oil prices are likely to benefit a few, especially the hard-hit consumers, who will be able to buy gasoline at cheaper prices at the pumps. Besides, a few others are also poised to gain from the decline.
Our Choices
The declining demand for fuel is going to continue at least until lockdowns are lifted and economies reopen. The world went from consuming 100 million barrels a day to about 70 million, and there’s no place to keep the excess production.
Refineries seem to be one of the biggest gainers. As crude oil is like raw material for refineries, their net cash flow increases when crude oil prices fall. Shipping companies, especially crude oil tankers, which will now be used to store oil, will be one of the biggest gainers from the drop in oil price. Also, the aviation industry, which includes both passenger and cargo airlines, are poised to gain as fuel plays a major part of their operating costs.
Also, low oil prices are a plus for miners. Mining companies’ 50% production costs are closely linked to energy prices, according to research firm Goldmoney. Cheap oil, despite the biggest output cut deal by the OPEC, should help gold miners’ operating margins.
Murphy USA, Inc. (MUSA - Free Report) is a leading independent retailer of motor fuel and convenience merchandise in the United States. The company markets refined products through a chain of retail stations.
The company’s expected earnings growth rate for the current year is 22.6%. The Zacks Consensus Estimate for current-year earnings has improved 14.1% over the past 30 days. Murphy USA carries a Zacks Rank #2 (Buy).
Calumet Specialty Products Partners, L.P. (CLMT - Free Report) processes crude oil into customized lubricating oils, solvents and waxes used in consumer, industrial and automotive products. The company also produces fuel products including gasoline, diesel fuel and jet fuel.
The company’s expected earnings growth rate for the current year is 87.3%. Calumet Specialty carries a Zacks Rank #2.
DHT Holdings, Inc. (DHT - Free Report) operates a fleet of double-hull crude oil tankers on international routes. DHT's modern fleet consists of three Very Large Crude Carriers, two Suezmax tankers and four Aframax tankers.
The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 19.9% over the past 30 days. DTH Holding sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Diamond S Shipping Inc. provides seaborne transportation of crude oil, refined petroleum and other products in the international shipping markets.
The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 10.5% over the past 30 days. Diamond S Shipping has a Zacks Rank #2.
Atlas Air Worldwide Holdings is the parent company of Atlas Air and Polar Air Cargo, which together operate the world's largest fleet of Boeing freighter aircraft.
The company’s expected earnings growth rate for the current year is 26.9%. The Zacks Consensus Estimate for current-year earnings has improved 57.2% over the past 60 days. Atlas Air holds a Zacks Rank #2.
Alamos Gold Inc. (AGI - Free Report) is an intermediate gold producer with diversified production from three operating mines in North America.
The company’s expected earnings growth rate for the current year is 30%. The Zacks Consensus Estimate for current-year earnings has improved 18.2% over the past 60 days. Alamos Goldcarries a Zacks Rank #2.
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This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
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Oil Hits Historic Low on Overwhelming Stockpiles: 6 Winners
On Apr 20, U.S. crude oil price plunged more than 190% for the month of May in a matter of a few hours, hitting a historic low. The coronavirus pandemic continues to crush demand while rising stockpiles overwhelm storage facilities across the country.
Measures like lockdowns to curb the spread of the deadly virus continue to crush fuel demand, leaving behind stockpiles that countries are struggling to store. However, declining oil prices might prove to be a blessing in disguise for some companies.
Oil Price Hits Historic Low
The price on the May futures contract for the West Texas Intermediate crude that is due to expire on Tuesday finished down $55.90, or 306%, entering negative territory at minus $37.63 a barrel. This is the first time that crude oil prices have fallen below zero. The one-day plunge is also the largest on record since New York Mercantile Exchange opened oil features trading in 1983.
This means sellers will now actually have to pay buyers to take crude oil off their hands. In fact, the Department of Energy is now contemplating paying domestic oil producers to take the responsibility of storing crude oil in the ground. Also, some companies in the oil patch are planning to build large tank farms to store crude oil for sale later when prices rebound.
Why Oil Price Entered Negative Territory
Black gold started taking a hit since coronavirus infections peaked and governments started imposing lockdowns. With a few people out on the streets travelling and airlines operating lesser number and flights, demand for fuel has been shrinking. Lack of storage combined with production — that is still above world oil requirement — led to a collapse in oil price as demand dropped 30% in just a couple of months.
Although OPEC and its allies last week reached a deal to slash output, it has failed to put a check on the decline in oil prices. OPEC+ unanimously agreed on cutting oil production to 9.7 million barrels per day, slightly below the proposed 10 million barrels mark. Per the deal, OPEC will start cutting production to 7.6 million barrels per day after June till the end of the year. Following that, it will cut production to 5.6 million barrels a day till April 2022.
The historic low oil prices are likely to benefit a few, especially the hard-hit consumers, who will be able to buy gasoline at cheaper prices at the pumps. Besides, a few others are also poised to gain from the decline.
Our Choices
The declining demand for fuel is going to continue at least until lockdowns are lifted and economies reopen. The world went from consuming 100 million barrels a day to about 70 million, and there’s no place to keep the excess production.
Refineries seem to be one of the biggest gainers. As crude oil is like raw material for refineries, their net cash flow increases when crude oil prices fall. Shipping companies, especially crude oil tankers, which will now be used to store oil, will be one of the biggest gainers from the drop in oil price. Also, the aviation industry, which includes both passenger and cargo airlines, are poised to gain as fuel plays a major part of their operating costs.
Also, low oil prices are a plus for miners. Mining companies’ 50% production costs are closely linked to energy prices, according to research firm Goldmoney. Cheap oil, despite the biggest output cut deal by the OPEC, should help gold miners’ operating margins.
Murphy USA, Inc. (MUSA - Free Report) is a leading independent retailer of motor fuel and convenience merchandise in the United States. The company markets refined products through a chain of retail stations.
The company’s expected earnings growth rate for the current year is 22.6%. The Zacks Consensus Estimate for current-year earnings has improved 14.1% over the past 30 days. Murphy USA carries a Zacks Rank #2 (Buy).
Calumet Specialty Products Partners, L.P. (CLMT - Free Report) processes crude oil into customized lubricating oils, solvents and waxes used in consumer, industrial and automotive products. The company also produces fuel products including gasoline, diesel fuel and jet fuel.
The company’s expected earnings growth rate for the current year is 87.3%. Calumet Specialty carries a Zacks Rank #2.
DHT Holdings, Inc. (DHT - Free Report) operates a fleet of double-hull crude oil tankers on international routes. DHT's modern fleet consists of three Very Large Crude Carriers, two Suezmax tankers and four Aframax tankers.
The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 19.9% over the past 30 days. DTH Holding sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Diamond S Shipping Inc. provides seaborne transportation of crude oil, refined petroleum and other products in the international shipping markets.
The company’s expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 10.5% over the past 30 days. Diamond S Shipping has a Zacks Rank #2.
Atlas Air Worldwide Holdings is the parent company of Atlas Air and Polar Air Cargo, which together operate the world's largest fleet of Boeing freighter aircraft.
The company’s expected earnings growth rate for the current year is 26.9%. The Zacks Consensus Estimate for current-year earnings has improved 57.2% over the past 60 days. Atlas Air holds a Zacks Rank #2.
Alamos Gold Inc. (AGI - Free Report) is an intermediate gold producer with diversified production from three operating mines in North America.
The company’s expected earnings growth rate for the current year is 30%. The Zacks Consensus Estimate for current-year earnings has improved 18.2% over the past 60 days. Alamos Goldcarries a Zacks Rank #2.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>