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America to Outpace OPEC in New Oil Supply: 5 Picks


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Oil prices have skyrocketed more than 140% from the historical low touched in early 2016. In response to the massive crude recovery, producers in the United States are gearing up to contribute the maximum to new oil supply in the medium term, according to the OPEC or the Organization of the Petroleum Exporting Countries.

The cartel, however, projected a decline in its own liquid supply, establishing strong prospects for U.S. shale producers. In other words, America is well positioned to capitalize on the crude rally that has been induced by global economic expansion and tightening of supply.

Oil Prices Continue to Rise

Brent crude futures recently traded at $82.22 a barrel, the highest in nearly four years. In fact, global crude is on track to witness a price rise in five straight quarters. The bullish stretch is the first time since 2007, when the commodity had increased for six successive quarters.

The West Texas Intermediate (WTI) crude futures recently traded at $72.45 a barrel, again approaching the 75-per-barrel psychological mark. Moreover, the average monthly prices of WTI in the respective months since January to August 2018 have been the highest since 2015. 

The sanctions by the United States on the export of Iranian oil, which is likely to get implemented on Nov 4, is primarily backing oil prices . In fact, America has been forcing other nations to stop importing Iranian crude.

Since Iran is the third-largest producer of crude among the OPEC members, analysts expect huge volumes of crude to come off the market starting early November. Hence, there is significant possibility for a further hike in crude price.

Global Oil Demand to Rise

Among all other fuels, oil will continue to witness the largest growth in demand in the 2015-2020 period, according to OPEC's 2018 World Oil Outlook .

Per the report, the global oil demand in 2017 was 97.2 million barrel per day (MB/D). Of the total, the road transportation sector demanded 43.6 MB/D last year, thereby accounting for almost 45% of the world's oil demand.

OPEC expects global oil demand to rise by 7.3 MB/D since 2017 through 2023. Over the time frame, road transportation sector will demand 3 MB/D more oil, followed by petrochemicals' 1.5 MB/B, the cartel added. Hence, Road transportation and Petrochemicals are the two sectors that will mostly boost oil demand in the medium term.

US Producers to Capitalize on the Demand Surge, Not OPEC

Crude prices are strengthening and the global demand for the commodity is on the rise. The favorable business scenario should stimulate oil producers to ramp up production.

However, OPEC expects its total oil supply to fall by 0.2 MB/D through 2017 to 2023, according to the 2018 World Oil Outlook. On the contrary, over the same time frame, the United States is gearing up to boost liquid production by 5.6 MB/D, per the report.

The 2018 World Oil Outlook depicts that non-OPEC players will likely increase liquid supply by 8.6 MB/D through 2023 since 2017. Of the countries, the United States alone will contribute to 65% of the liquid supply growth, reflecting that American producers will surpass OPEC in the race for market share of new production.

Bet on American Oil Producers

Since America will likely be on course to produce more crude, it is time to tap the oil rally with producers in the United States.

However, picking winning stocks is no mean feat. This is where our Stock Screener comes in handy. We have narrowed down our search to the following stocks based on a good Zacks Rank with other favorable parameters.

Headquartered in Houston, TX, Magnolia Oil & Gas Corporation MGY is a leading oil and natural gas explorer and producer with strong focus in the Eagle Ford. The company's production comprises more than 60% oil.

Magnolia Oil & Gas currently sports a Zacks Rank #1 (Strong Buy). Also, the Zacks Consensus Estimates of earnings for 2018 and 2019 have been revised upward over the past 60 days.  

Headquartered in Plano, TX, Denbury Resources Inc. DNR has strong focus on prospective resources in the Gulf Coast and Rocky Mountain areas. Of the company's total production volumes, crude comprises almost 97%.

We expect the company to witness earnings growth of 242.9% and 47.9% in 2018 and 2019, respectively. Currently, Denbury carries a Zacks Rank #2 (Buy).

W&T Offshore, Inc. WTI , headquartered in Houston, TX, is among the leading oil and natural gas exploration and production players, with key focus on resources located off the coast of Gulf of Mexico. Crude accounts for more than 50% of the company's production.

The company will likely post earnings growth of 60.7% through 2018. W&T Offshore currently sports a Zacks Rank #1. You can see  the complete list of today's Zacks #1 Rank stocks here .

Matador Resources Company MTDR , headquartered in Dallas, TX, is an oil and natural gas explorer with operations in both unconventional and shale resources. The company's production volumes comprise more than 56% of oil.

The #2 Ranked firm will likely record earnings growth of 102.8% and 17.7% in 2018 and 2019, respectively.

Based in Minnetonka, MN, Northern Oil and Gas, Inc. NOG is an upstream energy player with presence in the Williston Basin. Oil accounts for more than 84% of total production volumes.  

The Zacks #2 Ranked firm will likely post earnings growth of 292.9% and 17.3% in 2018 and 2019, respectively.  

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Northern Oil and Gas, Inc. (NOG): Free Stock Analysis Report

W&T Offshore, Inc. (WTI): Free Stock Analysis Report

Matador Resources Company (MTDR): Free Stock Analysis Report

Denbury Resources Inc. (DNR): Free Stock Analysis Report

Magnolia Oil & Gas Corp (MGY): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Stocks
Referenced Symbols: NOG , WTI , MTDR , DNR , MGY



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