Market Overview

7 Energy Stocks To Watch In 2018


With just a few days left before we ring in the New Year, it seems to be the right time to reflect on how the Oils-Energy sector has fared so far in 2017 and how it's poised for 2018.

A Look at Energy Sector's 2017 Performance

After emerging as the top-performing sector in 2016, the Oils-Energy sector has had a relatively turbulent ride this year. Till September, commodity prices have remained volatile and have been hovering mostly within the $45-$55 per barrel range. In the June-August period, it has consistently traded below the threshold mark of $50 a barrel. Notably, in June 2017, U.S. West Texas Intermediate fell to nearly $42 a barrel — the lowest in ten months.

The lacklustre performance of the sector in the first nine months of the year can be seen from the graph below. The chart clearly indicates that the sector has declined over 5.8% underperforming the S&P 500 index, which appreciated 12.6% over the said period.


The sector was plagued with increased domestic oil production which continues to be a potent headwind for the market. While OPEC is taking initiatives to trim output to address the supply gut, it has incentivized shale drillers to churn out more. The tightening of global oil market is thus getting undermined and prices have remained under constant pressure. The latest rig count report by Houston-based Baker Hughes hints at an oversupplied market, wherein it reported increase in the total U.S. rig count from 665 to 931, year to date.

However, things have started to look up for the sector over the past few months with the prices consistently trading at above the $55 a barrel mark. A number of factors have propelled this positivity. These include the OPEC-led production cut extension, lower inventory overhang and rising demand.

Recently the commodity traded at $60 per barrel — the highest mark since Jun 25, 2015. We are optimistic about the fact that the sector has outperformed the S&P 500 index in a month. It has gained 5.72% compared with the S&P 500 index that advanced 2.19% over the same time frame.



Notably, energy has been the best S&P sector performer in the third quarter of 2017. Third-quarter reported earnings figures have been impressive and earnings estimates have started to move north. In fact, among all the 16 Zacks sectors in the index, energy is probably the only one which is expected to witness triple-digit earnings growth in the fourth quarter. Reflecting the bullishness, the sector's debt has been declining and free cash flow has been increasing, signaling overall improvement in finances.

Can Energy Sector Tread on a Growth Trajectory in 2018?

Crude supply has been normalizing, which has pushed the price of WTI and Brent to new two-year highs. The improving commodity pricing environment looks somewhat sustainable on the back of tailwinds like the OPEC production cuts which are expected to continue till 2018-end along with improved demand outlook.

On Nov 30, 2017, OPEC members met non-OPEC players to decide on an extension of the crude production cut accord, first signed in late 2016. OPEC and fellow exporters also announced plans to remain open to extend their production-cut agreement beyond March, 2018 — an imperative step to combat the global crude glut. Some cartel members including less compliant nations like Iraq have also signalled another round of supply cuts.

As expected by most analysts, all crude exporters decided to extend the deal through 2018-end. Through the end of next year, Saudi Arabia, Russia and their allies pledged to put 1.8 million barrels a day of crude oil out of the market.

Investors have pinned hopes of recovery on the recent U.S. Energy Department's inventory releases that show multiple weeks of strong inventory draws in the domestic crude stockpiles — pointing to a slowdown in shale output. U.S. crude inventories have decreased by 6.5 million barrels to 436.5 million barrels last week, touching the lowest level since October 2015.

Adding to the positive momentum, Energy bodies OPEC and IEA recently raised global oil demand forecasts for 2018, helping to tighten the market significantly. The booming crude oil and gas exports this year reflect the substantial demand for U.S. oil.

All these factors point toward the growing stability and growth prospects for the energy sector in 2018.

Invest in These 7 Stocks to Enrich Your Portfolio

Chevron Corporation CVX: California-based Chevron is one of the leading integrated players and the second largest U.S. oil producer. Over the last nine months, the company reported a sharp year-over-year increase in cash flow from operating activities. Chevron's strategic initiatives, including cost reduction, exit from unprofitable markets and streamlining of business, bode well for the company. This Zacks #2 Ranked operator — with a massive market capitalization of more than $227 billion — has an expected earnings growth rate (next 3-5 years) of 8%.

Statoil ASA STO: Headquartered in Norway, Statoil is a major international integrated oil and gas company. The company is well positioned to sustain the steady production growth over the next few years on the back of its large resource base at Norwegian Continental Shelf. We commend the company's endeavors to improve recovery of resources in mature fields. This Zacks #1 Ranked operator — with a market capitalization of more than $66.3 billion — has an encouraging expected earnings growth rate (next 3-5 years) of 24.18%.

Halliburton Company HAL: Headquartered in Texas, Halliburton is one of world's leading oilfield services providers. Halliburton management believes that the North American land market is improving rapidly, driven by increased utilization and pricing — particularly for pressure pumping. The oilfield services company also has an incredible history when it comes to beating earnings estimates. Investors should note that Halliburton hasn't missed earnings estimates since mid-2014.The Zacks #2 Ranked firm — with a market capitalization of more than $39 billion — has an expected earnings growth rate (next 3-5 years) of 8%.

ENI S.p.A E: Headquartered in Italy, Eni's major business segments are Exploration and Production, Gas and Power, and Refining and Marketing.We believe that Eni's constant efforts to expand its upstream operations in Cyprus, Egypt, Vietnam, Indonesia, Pakistan and Kenya will go a long way in generating growth in the future. Moreover, start-up of new upstream projects in Ghana and Angola, Indonesia and Mexico will continue to support Eni's oil production growth. The Zacks #2 Ranked operator — with a market capitalization of more than $60 billion — is expected to deliver year-over-year growth of 57.09% in 2018 earnings.

HollyFrontier Corporation HFC: Headquartered in Dallas, TX, HollyFrontier is one of the largest independent refiners and marketers of petroleum products in the United States. A major advantage for the company is the high complexity index, or the capability to process a wide mix of crude, and access to some of the fastest growing domestic markets afforded by its portfolio of five refineries. Strong financials and attractive yields also boost investors' confidence. The Zacks #1 Ranked operator — with a market capitalization of more than $8.5 billion — has an expected earnings growth rate (next 3-5 years) of 10%.

China Petroleum & Chemical Corporation SNP: Commonly known as Sinopec, the Beijing-based company is the second largest oil/gas producer and the largest refiner/marketer of refined petroleum products in China. We appreciate Sinopec's large-scale oil discoveries, especially in the Shengli field and Junggar Basin, which will support long-term production. The Zacks #1 Ranked operator — with a market capitalization of more than $86 billion — has an expected earnings growth rate (next 3-5 years) of 6.5%.

PetroChina Company Limited PTR: Being one of the largest integrated oil companies in China, PetroChina was established in 1999 as part of restructuring China National Petroleum Corporation. PetroChina's robust portfolio of assets and strong balance sheet poise it to handle erratic market conditions better than most of its peers. The company's natural gas business offers promising growth prospects in the coming years as China is witnessing increased gas demand lately. The Zacks #2 Ranked firm — with a market capitalization of more than $126 billion — is expected to deliver year-over-year earnings growth of 82.83% in 2018.

China Petroleum & Chemical Corporation (NYSE: SNP): Free Stock Analysis Report
HollyFrontier Corporation (NYSE: HFC): Free Stock Analysis Report
Halliburton Company (NYSE: HAL): Free Stock Analysis Report
Chevron Corporation (NYSE: CVX): Free Stock Analysis Report
PetroChina Company Limited (NYSE: PTR): Free Stock Analysis Report
Statoil ASA (NYSE: STO): Free Stock Analysis Report
ENI S.p.A. (NYSE: E): Free Stock Analysis Report
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The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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