Although oil prices tumbled in the second half of 2022, the same has reversed and is trading back into the range. Oil prices increased after Saudi Arabia vowed to lower production by 1 million barrels per day (bpd) to counter factors that have slowed growth of the oil and gas industry.
International benchmark Brent crude traded at $76.57 a barrel, after increasing by almost 0.6%. The U.S. West Texas Intermediate crude stood at $72.03, which increased more than 0.4%.
Saudi Arabia, the world’s largest oil exporter, announced voluntary production reductions to be implemented in July. The country’s production will decline to 9 million bpd in July from about 10 million bpd in May.
Before the Organization of the Petroleum Exporting Countries (OPEC+) meeting started, it was predicted that the oil cartel would make production reductions to elevate prices. Any reduction will affect oil revenues, which are crucial to driving their economies. However, the other members agreed to extend reductions in production until 2024 to raise tumbling crude prices.
OPEC+, which extracts about 40% of the world’s crude, reduced its production target by 3.66 million bpd. This will represent 3.6% of the global demand. The additional Saudi production reduction is expected to magnify the market deficit to more than 3 million bpd in July, which can drive prices in the coming weeks.
In the short-term energy outlook, the U.S. Energy Information Administration projected the average spot price of West Texas Intermediate crude to be $74.60 per barrel this year. The chance of higher oil prices increased after the latest OPEC+ agreement.
Shares of oil companies are also gaining. With the United States going through inflationary times, investing in solid oil stocks will act as a hedge. We have identified three upstream stocks with upward trending earnings revisions.
SM Energy Company SM has a strong presence in the low-cost, oil-rich Permian Basin. Given the upstream firm’s increasing focus on crude, it will be able to boost oil-weighted activity in the coming days. The Zacks Rank #3 (Hold) company’s wells in the Austin Chalk region are producing around 50-90% liquids, which will boost investor value.
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For 2023, SM Energy projects its total production at 144-150 thousand barrels of oil equivalent per day (MBoe/d), the mid-point of which suggests an increase from 145.1 MBoe/d reported last year. Of the total output, 43% will likely be oil. Coupled with high oil prices, the increased output will boost the company's bottom line.
Matador Resources Company MTDR has a strong presence in oil-rich core acres of the Wolfcamp and Bone Spring plays in the Delaware Basin. Since 2011, the Zacks Rank #3 company has boosted its Delaware acreages drastically. From 6,700 net acres in 2011, the company’s operation now covers 150,000 net acres in the Delaware Basin.
Handsome crude price is likely to aid it in increasing production volumes. For 2023, Matador reiterated its oil equivalent production guidance of 44.35-46.25 million barrels. The metric suggests an improvement from 38.5 million oil equivalent barrels reported in 2022. The prime priorities that MTDR has set for this year are lowering debt levels, delivering free cashflows and maintaining or increasing dividends.
Pioneer Natural Resources Company PXD has a strong presence in the low-cost oil-rich Midland basin — a sub-basin of the broader Permian. The upstream energy player has a massive inventory of premium wells that will likely generate significant returns for the company. In 2023, the company plans to operate an average of 24-26 horizontal drilling rigs in the Midland Basin, which includes a three-rig average program in the southern Midland Basin area.
For 2023, Pioneer expects total production of 670-700 MBoe/d, indicating an increase from the 649.8 MBoe/d reported in 2022. The Zacks Rank #3 company expects a production of 357-372 thousand barrels of oil per day. Solid oil prices are boons for Pioneer’s upstream operations.
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