While the supply shock of 2022 is well and truly behind us, the energy sector has continued to be in the news. The Energy Select Sector SPDR (XLE) jumped a modest 7.3% year to date as of September.
The sector has primarily been driven by growth in oil refiners who have benefited from favorable spreads between the price of oil and its distillates. However, it has not been limited to refiners, with explorers and producers, equipment and services gaining ground as well.
However, geopolitical tensions have played the most significant role, as they did in 2022. With the threat of a broader conflict between Israel and Iran escalating, especially after Iran’s missile strikes on Jerusalem, hostilities in the Middle East are not going to go away any time soon.
Iran is one of the top 10 global oil producers, with production reaching more than 3.3 million bpd in August, the highest in five years. Iran exports half of its production, which is around 2% of global supply. Also, because of its strike on Israel, U.S. sanctions on Iranian oil exports can return, thus driving up prices.
The Organization of the Petroleum Exporting Countries (“OPEC”) and OPEC+ had previously agreed to increase its joint output by 180,000 bpd from December as part of its plan to raise supply in 2025. These macro drivers will continue to drive up oil demand and prices.
Oil prices closed 3% higher on Oct. 7, with Brent crude surpassing $80 per barrel for the first time since August. Brent crude rose $2.88, or 3.7%, to settle at $80.93/barrel. WTI crude advanced $2.76, or 3.7%, to $77.14 per barrel.
Oil prices have resumed their climb northward. With the inherent cyclical nature of the sector and based on the miles it has already traveled in 2024, the energy sector is possibly looking at a winning year. It will be prudent to look into stocks that are currently well placed to invest into.
Our Choices
The stocks below flaunt a Zacks Rank #1 (Strong Buy) or Rank #2 (Buy). The search was also narrowed down with a VGM Score of A or B. Here, V stands for Value, G for Growth and M for Momentum. The score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank stocks here.
Sasol Limited SSL is a global chemical and energy company. SSL’s expected earnings growth rate for the current year is 174.4%. The Zacks Consensus Estimate for its current-year earnings has improved 0.8% over the past 60 days. This Zacks Rank #2 company has a VGM Score of B.
Core Laboratories Inc. CLB provides production enhancement products and services to the oil and gas sector. CLB’s expected earnings growth rate for the current year is 18.8%. The Zacks Consensus Estimate for its current-year earnings has improved 2.2% over the past 60 days. This Zacks Rank #2 company has a VGM Score of B.
Nine Energy Service, Inc. NINE is an onshore completion services provider. NINE’s expected earnings growth rate for the next year is 35.8%. The Zacks Consensus Estimate for its current-year earnings has improved 15.2% over the past 60 days. This Zacks Rank #2 company has a VGM Score of A.
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Core Laboratories Inc. (CLB) : Free Stock Analysis Report
Sasol Ltd. (SSL) : Free Stock Analysis Report
Nine Energy Service, Inc. (NINE) : Free Stock Analysis Report