10 Top Oil Penny Stocks to Watch (May 2017)

The following list shows the top oil penny stocks to watch in May, ranked in order of biggest gains so far this month...

Oil Penny Stock Current Price Month-to-Date Gain
Zion Oil & Gas Inc. (Nasdaq: ZN) $1.65 +29.2%
Rex Energy Corp. (Nasdaq: REXX) $0.43 +26.4%
Ocean Rig UDW Inc. (Nasdaq: ORIG) $0.24 +18.7%
Approach Resources Inc. (Nasdaq: AREX) $2.43 +17.4%
Eco-Stim Energy Solutions Inc. (Nasdaq: ESES) $1.26 +16.8%
U.S. Energy Corp. (Nasdaq: USEG) $1.01 +16.2%
Calumet Specialty Products Partners LP (Nasdaq: CLMT) $3.94 +9.6%
CARBO Ceramics Inc. (NYSE: CRR) $7.50 +9.5%
Geopark Ltd. (NYSE: GPRK) $7.66 +7.7%
Eca Marcellus Trust I (NYSE: ECT) $2.20 +7.3%

The oil sector has been beaten down lately as oil prices struggle to stay in the mid-$50 range. The WTI crude oil price - the U.S. benchmark for oil prices - is down 8.8% to $46.14 so far in Q2. On May 4, it closed at $45.52 - the lowest settlement since Nov. 29, 2016.

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Still, six oil penny stocks have managed to post solid double-digit returns in May. The best-performing oil penny stock has been Zion Oil & Gas. Shares of ZN stock have gained 29.2% to $1.65 over just six sessions so far this month.

Those gains show how penny stocks can offer big returns in just a matter of days.

But here at Money Morning, we do not recommend buying into any of the top oil penny stocks listed in the chart above. While these firms are much safer than the ones listed over the counter (OTC) or on the pink sheets, you should always study a company's finances to make sure their shares are safe enough for your portfolio.

top oil penny stocks to watch

The volatile nature of the oil sector over the past three years has made this research even more important. After all, oil prices are still in the midst of one of their worst bear markets in history. Over the last three years, WTI has crashed 53.9% from $100 per barrel to $46.14 due to the growth of U.S. fracking. This - combined with OPEC's repeated refusal to cut production up until last November - has dragged both global and U.S. prices lower.

But Money Morning Global Energy Strategist Dr. Kent Moors still looks for profitable oil stocks in this unpredictable sector. In fact, he's recently recommended an oil transportation and storage company that stands to benefit from a $1 trillion oil boom called "Permania."

"Permania" refers to the production growth happening right now across the Permian Basin, a massive oil region spanning Texas and New Mexico. The U.S. Geological Survey last year discovered as much as 20 billion barrels of oil in just one region of the basin. And Moors' stock pick could rake in millions in new revenue from the discovery.

Although his recommendation isn't a penny stock, it offers investors the perfect combination of strong growth potential and a very big dividend.

Here's one of the best oil stocks to buy right now...

This Oil Stock Could Offer a Big Double-Digit Return by May 2018

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Moors recommends Magellan Midstream Partners LP (NYSE: MMP) as a great way to profit from the Permania oil boom.

Magellan is a master limited partnership (MLP) that transports and stores oil. An MLP is a firm that generates 90% of revenue from natural resources like oil and typically works in the midstream. That means it stores and transports oil instead of produces - called the upstream - or refine and sell - called the downstream.

Because these businesses only rely on transporting and storing oil, they're able to make money as long as the oil keeps flowing. And Magellan is one of the largest transporters of oil in North America, boasting 10,000 miles of pipelines across the continent.

What's most exciting about Magellan is its growing presence in the Permian Basin. The firm is adding about 1.7 million barrels of new oil capacity to its pipelines between its Gulf Coast storage facilities and the Permian.

In other words, Magellan will be making a lot more money now that its transportation capacity will be expanded by 1.7 million barrels. The firm already has a huge 36.4% profit margin, meaning 36.4% of Magellan's revenue becomes profit. That margin will grow as it starts to transport more oil thanks to the Permania oil boom.

Right now, Thomson Reuters analysts give MMP stock a one-year target of $90. That means investors who buy in now could see a return as high as 21.5% by next May. But that return could be even larger as some analysts still haven't factored the Permian into their targets.

Another impressive aspect of Magellan stock is its 4.7% dividend yield. For comparison, that's nearly four times larger than the 1.9% average yield of the S&P 500 right now.

Magellan's combination of double-digit share price growth and above-average dividend make it one of the safest and best oil stocks to buy this year.

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