After lagging for most of this year, the energy sector made a strong comeback on oil price surge. Oil price logged in the best month since January 2022 with crude oil rising more than 15% in July. Oil is extending its gains to start August as well. With this rally, crude oil has now recovered all its losses for the year.
Given the optimism, investors should ride the rally in the sector with top-ranked stocks. Fortunately, a number of stocks have seen their rank surge to the top Zacks Rank #1 (Strong Buy) over the past month. These are backed by strong fundamentals and have witnessed positive earnings estimate revisions over the past month.
Some of the stocks include Murphy USA Inc. MUSA, Enerplus Corporation ERF, Solaris Oilfield Infrastructure Inc. SOI, Oceaneering International Inc. OII and Helix Energy Solutions Group Inc. HLX. You can see the complete list of today’s Zacks #1 Rank stocks here.
The surge was driven by a tightening oil market, fueled by surging crude demand and supply reductions by major OPEC+ players, Saudi Arabia and Russia. Russia announced it would slash crude exports by 500,000 barrels per day in August, while Saudi Arabia is extending its supply curbs into the next month. An outage that curbed Nigerian supply also threatened the oil output. This reduction in supply, coupled with record-high demand, has resulted in market deficits and a shift away from pessimism toward growth.
Analysts estimate that crude demand is running at a record clip. Demand is being boosted by solid second-quarter GDP data numbers, which showed that the economy grew 2.4% annually from 2% growth in the first quarter, thanks to resilience among consumers and businesses in the face of high interest rates. The data supported the Fed’s view that the economy can achieve a so-called “soft landing.”
Additionally, a decline in inventories at the largest U.S. storage hub has led to a bullish pricing pattern known as backwardation (where later-dated contracts are cheaper than near-term contracts in the oil futures market) in WTI’s nearest two contracts. This signals that the oil market is tightening and demand is robust, paving the way for an oil rally. This trend is acting as the biggest catalyst for the commodity.
The latest data from American Petroleum Institute showed a much steeper-than-expected draw last week (ended Jul 28) in crude oil inventories in the United States — the world’s biggest fuel consumer. Per the data, U.S. oil inventories fell by 15.4 million barrels last week compared with analysts’ estimates for a drop of 1.37 million barrels. Inventories at Cushing, OK, fell by another 1.76 million barrels, after falling by 2.34 million barrels in the previous week.
Further, the expectations that the Fed is nearing the end of its monetary tightening cycle have boosted market sentiment and contributed to the latest oil price rally. Moreover, speculators have been ramping up bullish bets on U.S. crude futures, pushing prices higher.
Stocks to Buy
Murphy is a leading independent retailer of motor fuel and convenience merchandise in the United States. It has seen solid earnings estimate revision of 45 cents over the past 30 days for this year and has a market cap of $6.61 billion.
Murphy has a Zacks Rank #1 and a VGM Score of A.
Enerplus, formerly known as Enerplus Resources, is an independent oil and gas production company with resources across Western Canada and the United States. The stock saw an upward earnings estimate revision of 7 cents over the past 30 days for this year.
With a market cap of $3.5 billion, Enerplus has a Zacks Rank #1 and a VGM Score of A.
Solaris Oilfield manufactures and provides patented mobile proppant management systems, which unload, store and deliver proppant at oil and natural gas well sites and its systems are deployed in many of the most active oil and natural gas basins in the United States, including the Permian Basin, the Eagle Ford Shale and the SCOOP/STACK formation.
The stock saw a positive earnings estimate revision of 9 cents over the past 30 days for this year and has an expected earnings growth rate of 25%. Solaris Oilfield has a market cap of $488.2 million. It has a Zacks Rank #1 and a VGM Score of A.
Oceaneering International is one of the leading suppliers of offshore equipment and technology solutions to the energy industry. The company saw a positive earnings estimate revision of 4 cents over the past 30 days for this year, with an estimated earnings growth rate of 222.6%.
OCII has a Zacks Rank #1 with a market cap of $2.2 billion.
Helix Energy is an international offshore energy company that provides specialty services to the offshore energy industry, with a focus on their growing well intervention and robotics operations. It has a market cap of $1.4 billion.
Helix Energy saw a positive earnings estimate revision of a couple of cents over the past 30 days for this year and has an expected earnings growth rate of 200%. It has a Zacks Rank #1.
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