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3 Energy Stocks Primed for Success as Oil Trades Near $80

Recent developments in the Oil/Energy market have caused a notable uptick in oil prices, spurred by optimistic global demand projections from both the U.S. Energy Information Administration (“EIA”) and the Organization of the Petroleum Exporting Countries (“OPEC”). With forecasts indicating increased U.S. oil production and rising global liquid fuel consumption, the market sentiment is decidedly bullish. The combination of higher demand forecasts, decreasing U.S. crude oil inventories and a controlled increase in production by OPEC points to a stable and profitable environment for oil companies.

Upbeat Global Demand Forecasts

The EIA recently revised its forecasts, predicting higher records for both U.S. oil output and global demand in 2024.

U.S. crude oil production is projected to grow 2% from the 2023 level to an average 13.2 million barrels per day (bpd) in 2024, and another 4% in 2025, reaching 13.7 million bpd. The Permian region, which accounts for nearly half of the country's crude oil production, drives this increase, followed by contributions from the Eagle Ford region and the Federal Gulf of Mexico.

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Global liquid fuel consumption is projected to rise 1.1 million bpd to 103 million bpd this year, surpassing previous estimates. It is also anticipated to increase to 104.5 million bpd in 2025. Despite concerns about slowing consumption, these upward revisions are seen as positive for the oil market.

This revision highlights an expected increase in global oil consumption, driven by robust economic activities. Similarly, OPEC has maintained its forecast for strong demand growth in 2024, reinforcing the positive outlook for the oil market.

OPEC+ Production Cut

The OPEC+ alliance, spearheaded by Russia and Saudi Arabia, has been implementing significant output cuts to stabilize prices. Earlier this month, the cartel agreed to extend production cuts through the end of 2025. This includes maintaining existing cuts of 3.66 million barrels per day (bpd) and extending voluntary cuts of 2.2 million bpd. These measures aim to support market stability.

Market Sentiment and Prospects

The U.S. West Texas Intermediate (“WTI”) crude futures is currently trading close to the $80-a-barrel mark, which we believe is a healthy level for market participants. Moreover, with the EIA recently lowering its expectation of global oil output for 2024, the market appears to have tightened considerably, which could prop up prices further.

The OPEC group's decision to raise output fourth quarter onward indicates confidence in sustained demand. This controlled increase in production is likely to prevent any sharp drop in oil prices, ensuring a stable and profitable environment for oil companies.

Is It Wise to Invest Now?

Given the combination of strong demand forecasts and a stable outlook for oil production, energy stocks are positioned for potential gains. The rising oil prices not only promise short-term gains but also suggest a long-term upward trend in the energy sector, making it an opportune moment for strategic investments. With positive global demand forecasts and tighter supply conditions, energy stocks are poised to benefit significantly.

While the exploration and production companies should be able to charge more for the products they sell, the midstream firms (or the pipeline operators) are defensive in nature due to their long-term contracts and low commodity price risk. Having said that, higher oil realizations encourage production, which is a positive for their largely volume-driven businesses. Meanwhile, the oilfield service firms — providers of technical products and services to drillers of oil wells — get more work as prices increase.

To make life simpler for investors, we have identified three energy companies, SM Energy (SM), Subsea 7 S.A. (SUBCY) and Enterprise Products Partners L.P. (EPD) from the upstream, oil service and the midstream space, respectively, with a good value score to put your money on.

The Zacks Rank is a reliable tool that helps you trade with confidence regardless of your trading style and risk tolerance. To learn more about how you can use this proven system for market-beating gains, visit Zacks Rank Education.

Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy), offer the best opportunities in the value investing space. You can see the complete list of today’s Zacks #1 Rank stocks here.

SM Energy: An exploration and production company, SM is likely to directly benefit from the projected rise in U.S. crude oil production and higher global consumption. As oil prices climb, SM Energy's production activities, especially in prolific regions like the Permian and Eagle Ford, should become more profitable, leading to increased cash flow and shareholder value.

The Zacks Consensus Estimate for 2024 earnings per share (EPS) indicates 12.56% growth over 2023. SM carries a Zacks Rank #1 and a Value score of A at present. The company’s current market cap is roughly $5.62 billion. Its shares have risen 66.2% in a year.

Subsea 7: It is an engineering, procurement, construction and installation contractor in the offshore energy sector. The company is well-equipped to tackle challenges within the industry, boasting a robust presence in lower carbon oil and gas, carbon capture and storage, fixed and floating offshore wind, and emerging energies such as hydrogen. As oil prices rise, oilfield service companies like Subsea 7 are likely to benefit from increased demand for their technical products and services, leading to more work and potentially higher revenues.

The Zacks Consensus Estimate for 2024 EPS indicates 1740.0% growth over 2023. SUBCY carries a Zacks Rank #2 and a Value Score of A at present. Its current market cap is roughly $5.49 billion. The company’s shares have risen 65.7% in a year.

Enterprise Products Partners: It operates a vast network of pipelines spanning 50,000 miles, connecting to all major U.S. shale plays. With significant storage capacity, EPD generates stable fee-based revenues. The partnership is set to increase cash flow from its midstream growth projects under construction. Anticipated growth in U.S. crude oil production, especially from the Permian region, should heighten demand for EPD's transportation and storage services, driving its earnings growth.

The Zacks Consensus Estimate for 2024 EPS indicates 7.91% growth over 2023. EPD carries a Zacks Rank #2 and a Value Score of A at present. Its current market cap is roughly $61.67 billion. EPD’s shares have risen 8.8% in a year.

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Enterprise Products Partners L.P. (EPD) : Free Stock Analysis Report

SM Energy Company (SM) : Free Stock Analysis Report

Subsea 7 SA (SUBCY) : Free Stock Analysis Report

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