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Oil Surges on Record Fall in U.S. Crude Inventories: 5 Picks

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Following reports of U.S. domestic crude inventories declining to their lowest since February 2015, oil prices surged for the second consecutive day. Stiff fall in U.S. crude inventories overshadowed investors' concern that recent increase in global oil supply will dampen prices at least in the near term.

However, the global demand for petroleum remains firm and is anticipated to grow next year. Meanwhile, global oil production is likely to remain stable in 2018. This will enable the crude price to remain robust in the near term. At this stage, investment in energy stocks engaged primarily in oil explorations will be a prudent move.

Record Decline in U.S. Crude Inventories

On Jul 25, the U.S. Energy Information Administration (EIA) reported that domestic crude inventories fell 6.1 million barrels for the week ended Jul 20. Crude inventories at 404.9 million barrels reflect its lowest level since February 2015 and about 3% below the five year average for this time of year. Per the EIA data, gasoline stockpile also fell by 2.3 million barrels.

Consequently, the U.S. West Texas Intermediate (WTI) crude futures gained 1.14% or 78 cents to $69.30 per barrel while the Brent crude futures rose 0.7% or 49 cents to $73.93 per barrel.

Supply Concerns Remain High

Venezuela is plagued with economic instability and its oil production is not anticipated to reach normalcy till the end of 2018. Moreover, in May, the United States walked out of the Iran nuclear pact formed in 2015. The Trump administration has threatened all countries with U.S. sanctions if they don't stop importing oil from Iran by Nov 4.

On Jul 22, Iranian President Hassan Rouhani cautioned the United States about pursuing hostile policies against it, saying: "War with Iran is the mother of all wars." Against that warning, President Trump tweeted on Jul 23, stating ""Never, ever threaten the United States again or you will suffer consequences the likes of which few throughout history have ever suffered before."

Demand for Crude Oil Remains Firm

Recently, the OPEC estimated that total world oil consumption is anticipated at 98.85 million barrels per day (bpd) in 2018 and expected to increase to 110 million bpd in 2019. Several industry experts pointed that global oil inventories have already returned to its five-year average. However, the demand for oil remains robust.

In such a situation, OPEC's decision to increase production by 624,000 bpd will only just compensate the shortage and not result in a production glut. Additionally, several European oil majors have already started bundling their operations in Iran. This will further intensify oil shortage.

Our Top Picks

Strong international demand for crude oil, tight global oil inventories and stabilization of oil production level will aid oil price rally in the near term. Consequently it will be a prudent move to invest in good energy stocks. However, picking winning stocks can be a difficult task.

This is where our VGM Score comes in Handy. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select the winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.

We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 (Strong Buy) and a VGM Score of either A or B. You can see the complete list of today's Zacks #1 Rank stocks here .

The chart below shows price performance of our five picks year to date.

ConocoPhillipsCOP is a major global oil exploration and production company with operations worldwide. It has a VGM Score of A. ConocoPhillips has expected earnings growth of 620% for current year. The Zacks Consensus Estimate for the current year has improved by 12.8% over the last 60 days.

Penn Virginia Corp.PVAC is an oil and gas company. It engaged in exploration, development and production of oil, NGLs and natural gas. It has a VGM Score of B. Penn Virginia has expected earnings growth of 252.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 18% over the last 30 days.

Northern Oil and Gas Inc.NOG is an oil exploration and production company with core area of focus is the Williston Basin. It has a VGM Score of A. Northern Oil and Gas has expected earnings growth of 192.9 % for current year. The Zacks Consensus Estimate for the current year has improved by 13.9% over the last 60 days.

Rosehill Resources Inc. ROSE is an oil and gas exploration company producing assets located in Texas and New Mexico. It has a VGM Score of B. Rosehill Resources has expected earnings growth of 1,231.3% for current year. The Zacks Consensus Estimate for the current year has improved by 60.2% over the last 60 days.

Canadian Natural Resources Ltd. CNQ is a leading independent oil and natural gas exploration, development and production company. It has a VGM Score of A. Canadian Natural Resources has expected earnings growth of 168.5 % for current year. The Zacks Consensus Estimate for the current year has improved by 1.6% over the last 60 days.

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Canadian Natural Resources Limited (CNQ): Free Stock Analysis Report

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

ConocoPhillips (COP): Free Stock Analysis Report

KLR Energy Acquisition Corp. (ROSE): Free Stock Analysis Report

Penn Virginia Corporation (PVAC): 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.


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

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