One of the Best Oil Stocks on the Market Is Trading at a Discount

One of the best oil stocks to buy right now is currently priced as a steal, and it could make you a bundle of money as oil prices climb over the summer.

The stock is Phillips 66 Partners LP (NYSE: PSXP). It recently hit the Money Morning VQScore™ "Buy Zone," meaning it's a top stock to purchase now.

That makes it the perfect oil stock to buy as oil continues to recover from the 2014 glut.

West Texas Intermediate (WTI) crude oil prices broke past the $70 per barrel level on the week of May 7. Even though WTI prices per barrel have eased a bit - dipping to $66.51 - the climb above $70 per barrel is crucially important to the forward outlook for oil.

One of the Best Oil Stocks on the MarketThe price of oil hasn't risen higher than $70 in four years. The breakthrough means that oil-price strength has returned. We're even looking at scenarios where oil prices could reach $100 a barrel.

And that's going to be a huge benefit for companies that make their money from rising oil prices.

So when PSXP hit Money Morning's VQScore "Buy Zone," we wanted to put the word out right away.

You see, Phillips 66 Partners' profitability is so strong that it made money even when oil prices slumped. Now that the oil market is turning around, it's set to rake in even more cash.

Here's why...

Why Phillips 66 Partners Is One of the Best Oil Stocks

Phillips 66 Partners is a midstream oil and gas company structured as a master limited partnership (MLP).

Basically, it operates an oil and gas pipeline network that connects central hubs all across the United States, and it's a hugely profitable business model.

MLPs are designed to be lucrative for shareholders and are required by law to pass on the majority of the partnership's profits directly to shareholders.

Investors can see those profits in PSXP's healthy per share dividend of $2.86, which yields a robust 5.69% annually. That's cash in the pockets of investors immediately from one of the top oil stocks, even before the share price rises.

PSXP's strength no matter what's going on with oil prices is partly due to its relationship with its founder, Phillips 66 (NYSE: PSX). Phillips 66 has exclusive contracts with PSXP by which the latter transports and stores the former's oil.

Because of this relationship, PSXP is paid by Phillips 66 for pipeline use, even if it ends up not transporting its oil and gas. The end result is cash for PSXP, whether oil demand is up, down, or flat. In addition, when oil demand does rise, PSXP benefits from increased pipeline volume.

That's a win-win for PSXP and for its investors. Earnings can grow consistently no matter the oil-price and oil-demand scenarios.

That's why PSXP has been able to grow its earnings for five consecutive years, despite the oil price crash of 2014 and the fact that oil prices in 2016 were the lowest they'd been in a decade. In short, PSXP is a strongly managed firm that will continue to thrive no matter what the oil markets do.

But rising oil prices are going to amplify the stock's potential, doubly rewarding shareholders.

Here's what that means for PSXP's potential to surge...

What Rising Oil Prices Mean for PSXP Stock

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PSXP's outlook is great, partly because of the recent rise in oil prices. But oil is expected to keep rising. In fact, global consumption of oil is expected to reach 118 million barrels every day, a 20% climb from current levels.

Consumption of oil is rising in the United States as well. Earlier this year, the International Energy Agency forecast that U.S. production of oil for 2018 will rise 5.7% over 2017's 9.16 million barrels daily.

That's the highest level of U.S. production since 1970.

And there are three key reasons it will continue...

The first is recent discoveries of oil, like the 20 billion barrels at the Wolfcamp shale formation in 2016. There's never been more recoverable oil in the United States before.

The second reason is strides in drilling technology. U.S. oil firms are removing oil with higher efficiency and a more productive rate.

The third main driver of increasing oil production is rising demand across the world. Climbing demand globally is spurring the United States to hike its production. As it does, it is becoming the world's dominant oil-market player. The United States is forecast to fulfill 80% of global oil demand for the rest of this year.

Now that oil prices have broken the $70 per barrel threshold, profits are expected to skyrocket. Earnings growth is expected at 33% in 2018.

Canada, too, is benefiting from all these trends. Our neighbor to the north is forecast to take in profits of $1.4 billion because of increasing demand across the world.

Plus, OPEC wants to keep prices at least stable as production increases, so there's less reason to fear oil-rich countries ramping up production as prices rise.

In 2016, OPEC pledged to reduce oil production. And its member states have lived up to their goal of cutting 1.2 million barrels a day through the end of the year.

Right now, PSXP shares trade at $53.33. But analysts believe that the stock could rise to $65 in only 12 months, nearly a 22% jump.

But that could be too conservative if oil prices continue to rise.

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