Bet on These 4 Energy Stocks to Tap the Rally in Crude
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Oil price is surging since demand for the commodity is gradually approaching pre-pandemic levels. It seems oil exploration and production businesses are returning to their glorious days. Although it is expected that the environmental-friendly Biden administration will slowly push for renewables, oil still appears to be the fuel of choice. In fact, the beaten-down commodity has seemingly resurrected itself. Moreover, with the price of crude at multi-year highs, oil explorers will unlikely rush to slash production in order to address the climate risks immediately, especially when the world is demanding more oil again.
Solid Crude Price Recovery
The price of West Texas Intermediate (WTI) crude, trading at more than $69 per barrel mark, has improved drastically from the pandemic-hit April last year, when oil was in the negative territory. With coronavirus vaccines being rolled out at a massive scale, leading to gradual reopening of the economy, the demand for fuel will possibly improve further.
The latest agreements by OPEC and a group of non-OPEC producers led by Russia, called OPEC+, to stick to decisions of gradually easing production cuts, have reassured that the world is again demanding more oil, paving the way for crude price recovery. Notably, after betting on fuel demand rebound, the group has decided to bring back 2.1 million barrels per day of oil supply to the market through July since May.
Explorers Returning to Shale Plays
With the massive crude price recovery, oil explorers and producers are gradually returning to shale plays. Year to date, the price of WTI crude oil improved more than 40%. This has driven the tally of oil rigs in the United States to 359, as of the week ended May 28, from 267 in the week through Dec 31, 2020. The rig count data is per Baker Hughes Company (BKR – Free Report) .
Thus, with more rigs being added, a higher numbers of wells are likely to be drilled and completed, which in turn will lead to more production. According to U.S. Energy Information Administration’s (EIA) projection, the average U.S. crude oil production in the fourth quarter of 2021 is at 11.3 million barrels per day, which will increase to 11.8 million barrels per day in 2022.
Clean Energy Not an Immediate Threat to Oil
The fact that the world is looking for cleaner fuel since oil emits huge greenhouse gases is not an immediate threat to oil business and will not act as a barrier to the recovering commodity price. Oil will continue to be a vital source of fuel, at least for a decade, since the commodity is being used as a source of fuel for producing electricity, heating buildings and propelling vehicles. Oil is also being used as raw materials for making plastics, solvents, polyurethane and many other end products.
After rejoining the Paris climate agreement, in a virtual climate summit attended by 40 other world leaders in April this year, U.S. President Joe Biden announced that the United States has an aim to reduce its emissions of greenhouse gases by 50% to 52% below its emissions levels of 2005 by 2030. In another move to support investments in green energy, the Biden administration wants to end some fossil fuel subsidies and incentivize clean energy production. However, Biden is yet to win Republican backing for this $1-trillion new infrastructure plan.
Despite the fact that the Biden administration is actively pushing for green energy, the complete transformation from oil to renewables is not imminent and in fact will take many years. Overall, oil business is getting lucrative with most industry observers believing that global oil demand will get back to pre-pandemic level by as early as next year.
4 Oil Stocks to Gain
Thus, it is an opportune moment for investors to allocate money toward oil stocks. We have zeroed down on three stocks sporting a Zacks Rank #1 (Strong Buy) and one with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Continental Resources, Inc. (CLR – Free Report) is a leading producer of crude in the United States and hence is well placed to cash in on the oil price rally. Notably, the company has a strong presence in the core of a prolific oil field – the Bakken play of North Dakota and Montana.
Along with its first-quarter results announcements, the company said that it expects to generate $3.1 billion of operating cashflow and $1.7 billion of free cashflow for this year, considering WTI crude trades at $60 per barrel. The projections suggest a significant year-over-year improvement from last year’s $1.4-billion operating cashflow and $275-million free cashflow.
The #1 Ranked stock has witnessed upward earnings estimate revisions for 2021 and 2022 in the past seven days. Moreover, the stock is likely to see earnings growth of more than 279.5% in 2021.
Callon Petroleum Company (CPE – Free Report) is an upstream company with strong presence in prolific shale plays like Permian Basin and Eagle Ford. The company has set a target of completing 90 to 100 gross wells in 2021. Thus, the Zacks #1 Ranked upstream player is likely to complete higher wells this year in comparison to 90 gross completed wells in 2020.
Notably, in the past seven days, Callon Petroleum has witnessed upward earnings estimate revisions for 2021 and 2022, respectively.
Earthstone Energy, Inc. (ESTE – Free Report) is a leading upstream company having footprint in the core of Midland Basin of west Texas and the Eagle Ford Trend of south Texas. By hedging 88% of 2021 oil production, the company is not exposed significantly to volatility in commodity price.
In the past 30 days, the stock with a Zacks Rank of 2 has witnessed upward earnings estimate revisions for 2021 and 2022, respectively.
Oasis Petroleum Inc. (OAS – Free Report) has positioned itself exclusively in the Williston Basin, following the strategic sale of its Permian assets. Considering the robust inventory life along with scale and size of its operations, the company expects significant value creations for its shareholders.
It is to be noted that in the past seven days, the Zacks Rank #1 stock has witnessed upward earnings estimate revisions for 2021 and 2022, respectively.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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