Several factors are fueling a rise in crude oil prices right now. And we're just getting started on an extended crude price rally that will take us through the third quarter of 2019.
The price of WTI crude oil is sitting just below a 2019 high, near $56 per barrel. The same goes for Brent crude, which pushed to the brink of $67 per barrel.
Don't just take our word on it. Three major trends are driving oil prices higher. And that's excellent news for three major oil stocks that have just hit our "Buy Zone."
Buying these three energy stocks now, before the price of oil surges again, could be the key to double- or even triple-digit profits in 2019.
Here are those three trends - and the three oil stocks poised for major breakouts in 2019...
Supply Cuts and Sanctions Will Drive Oil Prices Higher in 2019
Three major trends are converging to push oil prices higher right now.
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First, OPEC and non-affiliated producers like Russia will cut daily production output by 1.2 million barrels per day (bpd). Those supply cuts will complement a reduction in exports by Saudi Arabia - OPEC's largest member - to Asia.
Second, North American producers continue to face bottlenecks in key producing regions around the continent.
Bottlenecks have curbed the flow of oil to refiners.
Railcar use has picked up once against due to the lack of pipeline capacity. An average of 718,000 barrels of oil are going by rail a day in the United States, a figure that is a year-over-year jump of 88%.
Although U.S. production is sitting at record highs, a glut is inevitable, but it's not coming until the end of the year, according to BNP Paribas.
Finally, the United States' sanctions on both Iran and Venezuela continue to weigh on the global supply and demand balance.
Just last week, consultants at FTI Consulting noted that even though Canada could pump more oil, the lack of transport will not reduce the market gap that has expanded.
Even though the United States pumps 11.9 million barrels per day, the U.S. imported 500,000 barrels from Venezuela per day (part of a broader import average of 7.9 million bpd). Meanwhile, Iran (which exported about 1.25 million barrels per day in January), is expected to see that figure drop under 1 million over time as sanctions weigh on the nation's economy.
BNP Paribas projects that U.S. oil prices will rise to an average of $66 by the end of the third quarter. The firm projects that Brent crude will hit an average of $73 in the months ahead.
Those double-digit percentage gains for oil will be felt in the pocketbooks of every American.
However, smart investors can get out of those oil price gains right now and make money on three stocks poised to break out in the coming months. And to find these stocks, we tapped into the single most powerful tool on Wall Street to identify wealth-building buys.
The Money Morning Stock VQScore™...
The Best Energy Stocks to Buy Now, No. 3:
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The first pick on this list is Diamondback Energy Inc. (NASDAQ: FANG).
Diamondback Energy is an independent oil and gas producer that operates in the Permian Basin in West Texas. The firm performs activities in the Wolfcamp, Spraberry, Clearfork, Bone Spring, and Cline formations. The company just fell short of fourth-quarter earnings expectations due to a "drastic decline in commodity prices and one-time merger-related expenses."
The company noted that Q1 would be weaker for oil prices. But with those prices heating up heading into the second quarter, FANG is a stock poised for a breakout. The stock has our highest VQScore, and its balance sheet looks healthy.
While debt is always a question for energy companies, FANG has a robust Z-Score of 3.65. The Altman Z-Score is a powerful predictor of which companies are poised to avoid bankruptcy and cover their debt load. Anything over 2.0 is a good number for our interests.
According to TipRanks, Diamondback has an average price target of $155.36.
That figure represents an upside of $48.24% from Tuesday's closing price. All 14 analysts on TipRanks' platform have a "Buy" rating on the stock.
And the highest target - from Barclay's - is a whopping $189 per share. That would be an 84.6% jump in FANG stock.
The Best Energy Stocks to Buy Now, No. 2:
Next is Royal Dutch Shell Plc. (NYSE: RDS.A).
You probably don't need much of an introduction to Royal Dutch Shell, one of the world's largest companies in the world by revenue.
The Netherlands-based giant surpassed Exxon-Mobil Corp. (NYSE: XOM) and has successfully diversified its business away from just the price of oil and gas.
Even in the face of falling oil prices since 2014, the company still has shown an ability to generate a profit for investors. The company reported a 42% jump in free cash flow year over year. That's one of the reasons why it has an incredible F-Score of 8. It also pays a dividend yield just under 6%.
Now, rising oil prices will pad both the profits and the bottom line. And it's still cheap, with a price to free cash flow ratio of 8.76 (anything close to 7 is a good way to profit).
While FANG stock will react more to the price of WTI crude, Royal Dutch Shell's share price will react more in connection to the cost of Brent crude. According to Tipranks, the average price target for Royal Dutch Shell is $76. That figure gives a potential upside of 20.35%.
The Best Energy Stocks to Buy Now, No. 1:
Finally, we have Occidental Petroleum Corp. (NYSE: OXY).
The Houston-based, multinational energy producer has an F-Score of 8 and provides a reliable dividend of 4.67%. Also, the company's enterprise-to-EBIT of 10.89 puts it into our range for takeover targets.
But with our highest VQScore, the stock could easily surpass its consensus target of $77.56. That figure would be an upside of 14.7% from Tuesday's close price.
In fact, with that VQScore, we could see the price move closer to $101, which is the price target of Scotiabank. That target represents an upside of almost 50%.
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About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.