Crude Oil Price Scales 2-Month High: 4 Top Picks

Crude oil prices have been stabilizing since the beginning of 2019 buoyed by the decision of OPEC and Russia-led oil exporters to cut production levels, lower U.S. crude oil supplies and supply related problems in Iran and Venezuela.

Additionally, any positive development in the ongoing trade tensions between the United States and China will be a major boost to oil prices. At this stage, it will be prudent to invest in oil stocks with a favorable Zacks Rank.

Oil Price Hits Two-Month High

On Jan 30, the U.S. benchmark West Texas Intermediate (WTI) crude gained 92 cents or 1.7% to close at $54.23 a barrel on the New York Mercantile Exchange. This was WTI crude’s highest close since Nov 21, 2018. The global benchmark Brent crude rose 33 cents or 0.5% to $61.65 a barrel on ICE (NYSE:ICE) Futures Europe.

The U.S. benchmark WTI crude ended 2018 at a price of $44.48 per barrel while the global benchmark Brent crude oil ended 2018 at a price of $51.49. Both benchmarks are up 20% in 2019 so far, exhibiting best January performance since 1985.

OPEC Cuts, Venezuela Sanctions Squeeze Supplies

The OPEC and Russia-led oil exporters have decided to cut crude oil supplies by 1.2 million barrels per day (bpd) in 2019. This massive cut will aid in stabilization of oil prices. In a separate development, Qatar decided to quit OPEC in a bid to focus more on natural gas production than crude oil, indicating lower crude oil supply. In December 2018, oil supplies from OPEC nations plunged by 751,000 bpd to nearly 31.6 million bpd.

On Jan 28, U.S. government announced sanctions on Venezuela's state-owned oil company, Petroleos de Venezuela SA (PDVSA). Venezuela, once the fourth largest oil producer in the world, is suffering owing to lack of modernization of oil plants.

The sanctions will block diversion of Venezuelan oil assets worth $7 billion by the country’s sitting President Maduro. The United States will continue to support Interim President Juan Guaidó of Venezuela.

Impact of Libya, Iran Export Cuts Linger

Oil exports from Libya fell by 172,000 bpd to 928,000 bpd in December. Decline in oil supply took place after a group of armed protesters and aggrieved workers took over the country's largest oil field. Meanwhile, oil export dropped by 159,000 bpd to just under 2.8 million bpd in Iran owing to the imposition of U.S. sanctions.

Additionally, on Jan 30, the U.S. Energy Information Administration (“EIA”) reported that domestic crude supplies increased by 900,000 barrels for the week ended Jan 25. However, this figure was lower than 1.1 million barrels predicted by the American Petroleum Institute.

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Near-Term Solution to Trade War Likely

The United States and China is continuing negotiation’s to reach an amicable solution to ten month long tariff dispute. Although, no concrete solution has emerged so far, a series of meetings is likely to pave the way for a permanent solution in the near future. The two countries are currently observing a trade truce which will come to end on Mar 1.

Our Top Picks

Crude oil prices are likely to remain northbound in the near term. Consequently, investment in oil stocks will be lucrative. However, picking winning stocks may be difficult.

This is where our Zacks Investment Research

Written By: Zacks Investment Research