Oil registered its biggest monthly decline in more than 10 years as the specter of abundant global supply swamping demand scared off investors. Black gold dropped 1% to $50.93 on Friday, bringing its monthly loss to around 22%. That’s the steepest drop since October 2008, when the commodity tumbled 33.5% during the height of the global financial crisis. Crude surged to a four-year high in early October.
But after sinking to its lowest in more than a year, we expect oil to bounce back over the next month or so based on a slew of positive trends.
Oil Posts Largest Monthly Loss Since 2008
There is increasing evidence that a fundamental change is occurring in the oil market. WTI crude, the American benchmark, popped above $76 a barrel and was trading at multiyear highs in early October. A looming shortage of the commodity on Iran sanctions helped in driving oil prices higher. Then, in a reversal, oil faced a two-pronged attack: rising supply from major producers and fear that an economic slowdown will dampen the outlook for demand. Oil’s troubles pushed the index into a bear market last month, leading to a 20% drop from recent highs.
Global oil supplies are looking plentiful and are expected to outstrip demand at the beginning of 2019. Predictions of more crude coming to the supply side through rising production in the United States, Saudi Arabia and Russia added to the bearish sentiment on the market. Even the demand side looked jittery with OPEC and the IEA forecasting weaker consumption.
President Trump’s support for low oil prices also contributed to the losses, while the dollar strength played spoilsport by making the greenback-priced crude dearer for investors holding foreign currency.
Prices Set to Rebound from Current Levels
Following last month's oil rout, most industry experts feel that prices have bottomed out and are on the cusp of a pick-up. Much of their optimism lies in the anticipation of a production cut at OPEC’s December meeting. The cartel members and Russia are expected to commit to cutting output by 1 million-1.4 million barrels per day from October levels in an attempt to drain inventories and boost prices.
The temporary truce in the trade war between the United States and China also support the positive oil market narrative. The 90-day ceasefire among the world's two biggest economies – on imposition of additional tariffs – is likely to buoy global crude demand.
Further, one must note that there is still an air of uncertainty over the impact of the Trump administration’s sanctions against Iran. While exports out of Iran are likely to decline gradually, the much talked-about waivers to some of the country’s biggest buyers of oil are only temporary in nature. Fast-falling production in Venezuela should provide further support to crude prices.
How to Identify the Outperformers?
The possibility of rising crude prices over time does not necessarily indicate that all energy scrips would be wise picks. Moreover, with a wide range of energy firms thronging the investment space, it is by no means an easy task for investors to arrive at stocks that have the potential to deliver attractive returns. While it is impossible to be sure about such outperformers, this is where the Zacks Rank, which justifies a company’s strong fundamentals, can come in really handy.
To guide investors to the right picks, we highlight five stocks that fell considerably less than oil prices (or, in some cases, gained) over the last four weeks and carry a Zacks Rank of #1 (Strong Buy) or #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Rank is a reliable tool that helps you to 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.
Ranger Energy Services, Inc. RNGR is a well servicing and wireline contractor provider to upstream energy firms. The stock currently has a Zacks Rank #1, while shares of Ranger Energy have gained 14.6% in the past four weeks.
In the last 60 days, two earnings estimates moved north, while one moved south for the current year. The Zacks Consensus Estimate for earnings has risen 55.6% in the same period.
Enterprise Products Partners L.P. EPD is among the leading midstream energy players in North America, providing services to producers and consumers of oil, natural gas liquids (NGL), natural gas and refined petrochemical products. The stock currently has a Zacks Rank #1, while units of Enterprise Products have lost 2.8% in the past four weeks.
In the last 60 days, 10 earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings has risen 13.2% in the same period.
Phillips 66 Partners PSXP owns and operates fee-based crude oil, refined product and NGL pipelines and terminals, as well as other transportation and midstream assets. The stock currently has a Zacks Rank #1, while units of Phillips 66 Partners have lost 4.4% in the past four weeks.
In the last 60 days, seven earnings estimates moved north, while none moved south for the current year. The Zacks Consensus Estimate for earnings has risen 7.4% in the same period.
Cimarex Energy Co. XEC is an independent oil and gas exploration and production firm whose operations are located mainly in Oklahoma, Texas and New Mexico. The stock currently has a Zacks Rank #2, while shares of Cimarex Energy have gained 1.4% in the past four weeks.
In the last 60 days, nine earnings estimates moved north, while two moved south for the current year. The Zacks Consensus Estimate for earnings has risen 6.4% in the same period.
Helmerich & Payne, Inc. HP is engaged in the contract drilling of oil and gas wells in the U.S. and internationally. The stock currently has a Zacks Rank #2, while shares of Helmerich & Payne have lost 2.6% in the past four weeks.
In the last 60 days, seven earnings estimates moved north, while none moved south for the current fiscal year. The Zacks Consensus Estimate for earnings has risen 79.8% in the same period.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Phillips 66 Partners LP (PSXP) : Free Stock Analysis Report
Enterprise Products Partners L.P. (EPD) : Free Stock Analysis Report
Helmerich & Payne, Inc. (HP) : Free Stock Analysis Report
Cimarex Energy Co (XEC) : Free Stock Analysis Report
Ranger Energy Services, Inc. (RNGR) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research