Higher Oil Price: Winners And Losers
Zacks Investment Research | May 10, 2018 09:41PM ET
Oil price has zoomed to the highest levels in more than three and a half years buoyed by potential export disruptions in Iran and falling production in Venezuela. Additionally, the historic output cut deal by OPEC, Russia and other producers to curb production is paying off, paving the way for a rebalancing of the oil market despite rising U.S. production.
The global benchmark Brent crude and U.S. West Texas Intermediate (WTI) rallied above $77 and $71 per barrel, respectively. The bullish trend is likely to continue given that Trump has decided to restore sanctions on Iran, which will disrupt oil supplies in the major Middle East oil producer Iran, resulting in further tightening of the global glut.
Additionally, seasonality will continue to support a price surge in the coming months. This is because demand generally picks up in a summer driving season (which starts with Memorial Day at the end of May and lasts until Labor Day in September), leading to higher prices.
A Blessing
Higher oil price is big boon to energy stocks, especially producers and explorers, which get most of their revenues from selling the crude that they extract. This is because the cost of oil production or extraction remains low as companies look to lock in supply contracts at higher prices. The gap between production cost and selling price keeps on rising when oil price surges even higher, leading to fat profit margins and thus a spike in company’s share price.
As a result, the S&P Energy Index has gained Zacks Investment Research
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