3 oil stocks to win as OPEC + reassures Omicron’s moderate impact

OPEC and its non-OPEC allies, collectively called OPEC +, reassured Omicron’s limited impact on the energy sector, leading to a rally in energy stocks.

OPEC + decision: new impetus in the crude oil rally

The price of West Texas Intermediate (WTI) crude once again hit the $ 77 per barrel mark, marking an improvement of more than 51% from a year ago. With coronavirus vaccines rolled out on a large scale and booster doses and antiviral pills proving effective against Omicron, the economy may weather the recent spike in coronavirus cases. This improves the outlook for fuel demand.

The new OPEC + decision to continue pumping more oil has reassured that Omicron’s effect on fuel demand may be moderate. OPEC + has decided that in February they will collectively increase their production by an additional 400,000 barrels per day. The OPEC + decision gave new impetus to the rise in crude prices.

Number of platforms to increase

A favorable crude price scenario will likely encourage some drillers to return to the well rig. In its weekly publication, Baker Hugues Society BKR reported that the number of rigs engaged in oil exploration and production in the United States was 480 for the week through December 31, according to the previous week’s tally. Thus, the count has increased in eight of the previous 10 weeks.

The Rotary Platform Count, published by Baker Hughes, is typically published in major journals and trade publications. Baker Hughes data, released at the end of every week since 1944, helps energy service providers assess the overall business environment for the oil and gas industry. The number of active rigs and its comparison with the previous week’s figure indicates the trajectory of demand for Baker Hughes’ petroleum services from exploration and production companies.

Skip production

The improvement in the price of oil, which helps the number of rigs to increase, in turn portraying the image that the upstream business environment will continue to be favorable. This will likely lead to an increase in the production of the product.

By January 2022, total oil production from shale resources in the United States will likely increase from 96,000 barrels per day to 8,438,000 barrels per day (MBbl / D), according to the Energy Information Administration (EIA) of United States. Shale resources include Anadarko, Appalachia, Bakken, Eagle Ford, Haynesville, Niobrara and Permian.

Of all the resources, the Permian will see the biggest increase in daily oil production next month, according to the EIA’s Drilling Productivity Report. In the Permian, the EIA predicts that oil production will increase by 71,000 barrels per day to reach 5,031 MBbls / d by January 2022.

3 actions to win

We focused on three oil stocks that saw share prices rise following OPEC + ‘s recent announcement that Omicron will not have a damaging impact on fuel demand. These stocks are also well positioned to continue winning. The stocks currently carry a Zacks Rank # 3 (Hold). You can see The full list of Zacks # 1 Rank (Strong Buy) stocks today here.

Based in Dallas, Texas, Matador Resource Company MTDR has a strong footprint in the liquid rich areas of Wolfcamp and Bone Spring in the Delaware Basin. Matador Resources increased production while providing strong well results in the Delaware Basin, a larger Permian sub-basin.

Matador Resources expects total oil equivalent production to increase by 13% in 2021, ensuring healthy cash flow amid improving oil prices. The recent OPEC + decision to pump more oil, in anticipation of a limited impact from Omicron, led Matador Resources to gain more than 10% on January 4.

PDC Energy, Inc. PDCE is focused on creating meaningful value with a strong presence in the Delaware Basin – a sub-basin of the Permian – where the company’s operations span approximately 25,000 net acres. Despite the coronavirus pandemic, PDC Energy fared quite well last year and forecasts free cash flow for 2021 of more than $ 900 million.

PDC Energy is also focusing on debt reduction. In order to strengthen its balance sheet, PDC Energy plans to reduce its debt by more than 40% in 2021. The recent decision by OPEC + to pump more oil led PDC Energy stock to gain 6.3% on January 4.

Diamondback Energy, Inc. FANG is a leading Permian pure operator, with a large footprint over 413,000 net acres in the prolific Midland and Delaware sub-basins. Diamondback Energy has raised its 2021 average daily production forecast to 370-372,000 barrels of oil equivalent per day (MBoE / D) from the previously guided range of 363-370 MBoE / D. Thus, FANG will generate significant cash flow through higher production and an increase in the price of crude.

The recent OPEC + move led Diamondback Energy to gain 6.6% on January 4. Zacks’ consensus estimates for Diamondback Energy earnings per share for 2021 and 2022 show year-over-year increases of 269.7% and 54.9%, respectively.

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PDC Energy, Inc. (PDCE): Free Inventory Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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Felix J. Dixon