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5 Top Oil Stocks to Buy on Hurricane Michael, Iran Concerns


A confluence of concerns boosted oil prices significantly on Oct 9. First, the Gulf of Mexico braced for Hurricane Michael, one of the worst storms that the United States has experienced this year. Evacuation from several platforms has already been made and nearly 20% of daily U.S. offshore crude production has been stopped.

Providing a firmer basis to higher oil prices are Trump’s impeding sanctions on Iran. Evidence has emerged that the country’s oil exports are dropping ahead of sanctions, which will take effect from November, resulting in a major supply crunch. This is why it makes sense to invest in oil stocks at this point.

Hurricane Michael Hurts Offshore Output

Hurricane Michael is expected to make landfall Wednesday on the Florida Panhandle. Labeled as a Category 3 storm, this will be the fiercest to hit the mainland United States up to now this year. But the storm will first cross the Gulf of Mexico, host to nearly 20% of U.S. crude offshore oil production.

Evacuations had begun on Oct 8 itself as operators prepared for the impending storm. A minimum of 10 platforms were evacuated and nearly five rigs were removed from the path of the storm. BP p.l.c. BP, BHP Billiton Limited BHP and Anadarko Petroleum Corporation APC were among the companies undertaking evacuations.

Oil Prices Jump, Storms to Cause Major Losses

Consequently, Brent crude increased by 1.3% or $1.09 to hit $85 a barrel on Oct 9. WTI crude increased by almost 1% or 67 cents to hit nearly $74.96. Both Brent and WTI crude prices had hit four-year highs last week.

If the storm stays true to forecasts, it would mostly avoid major oil production facilities in the region. However, if it changes its path, its impact could be severe. Several more storms are likely before the Atlantic's hurricane season gets over. So, the industry may be unable to avoid the ultimate impact of such weather.

Iran Oil Exports Falls Ahead of Sanctions

Per industry sources and tanker data, Iran’s exports declined considerably during the first week of October. Per data from Refinitiv Eikon, Iran’s crude exports came in at 1.1 million bpd during this period. Another industry source claimed that the figure had dropped far below this level.

This is significantly lower than April’s figure of 2.5 million bpd. At this point, the United States was still to exit the 2015 nuclear deal with Iran. The level is also lower than September’s figure of 1.6 million bpd. Major oil importing countries are likely scrambling for options before U.S. sanctions take effect on Nov 4.

Our Choices

Hurricane Michael could well leave production facilities in the Gulf of Mexico unscathed. But the loss in output due to the storm is a precursor to others likely to hit the United States later this year. Meanwhile, Iranian crude exports continue to fall and could lead to a major supply crunch in the months ahead.

Investing in oil stocks looks like a smart option at the moment. We have narrowed down our search based on a Zacks Rank #1 (Strong Buy) and other relevant metrics. You can see the complete list of today’s Zacks #1 Rank stocks here.

Chevron Corporation CVX is one of the largest publicly traded oil and gas companies in the world, based on proved reserves.

Chevron’s projected growth for the current year is more than 100%. Its earnings estimate for the current year has improved by 2.4% over the last 30 days.

Range Resources Corporation RRC is an independent oil and gas company, engaged in the exploration, development and acquisition of oil and gas properties primarily in the Appalachian Basin and North Louisiana.

Range Resources’ projected growth for the current year is 87.6%. Its earnings estimate for the current year has improved by 2.4% over the last 30 days.

Penn Virginia Corporation PVAC is an oil and gas company. It is engaged in the exploration, development and production of oil, NGLs and natural gas.

Penn Virginia’s projected growth for the current year is more than 100%. Its earnings estimate for the current year has improved by 0.1% over the last 30 days.

Shell Midstream Partners, L.P. SHLX engages in owning, operating, developing and acquiring pipelines and other midstream assets.

Shell Midstream Partners’ projected growth for the current year is 5.9%. Its earnings estimate for the current year has improved by 3.4% over the last 30 days.

Unit Corporation UNT is a diversified energy company operating in the United States.

Unit Corp’s projected growth for the current year is 59.3%. Its earnings estimate for the current year has improved by 0.3% over the last 30 days.

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