All Eyes and Stocks on OPEC

06/01/2016 9:07 am EST


Michael Berger

President & Founder,

All eyes are on OPEC as the group is scheduled to meet this week; although the price of oil is down more than 50% from its all-time highs, some OPEC members are happy with the current state of the industry and Michael Berger, Associate Editor of highlights energy stocks he would buy on weakness.

Oil erased its gains after UAE Oil Minister Suhail bin Mohammed al-Mazroui said he was happy with the current state of the oil market, and suggested that OPEC should refrain from taking action at this week's meeting.

Oil prices were also impacted by expectations of higher exports from the Middle East as well as the state of China’s economy, which has weighed on its oil demand outlook.

Expect No Change at OPEC Meeting

The comments made by UAE’s Oil Minister are not surprising given the fact that West Texas Intermediate has rallied more than 85% off of its February 2016 lows.

The recent rally by oil leads us to believe that there will be not be any changes to OPEC’s focus on defending market share instead of capping production, which would serve as a catalyst to oil prices.

Many analysts would not be surprised if OPEC decided to continue to increase oil output. Iran's OPEC representative said the country would not commit to any oil output freeze and that any discussion of rationing output would have to wait until the oil market stabilizes.

Two Energy Companies to Watch

Continental Resources (CLR) is one of our favorite energy companies focused on exploration and production due to its exposure to liquid-rich Mid-Continental resource plays (i.e. SCOOP, STACK, and Springer), as well as its industry-leading Bakken position. Continental has seen both SCOOP and STACK wells deliver impressive results as the company continues to drive down costs.

Although CLR is up more than 80% during 2015, we think CLR is a great buy on weakness (below $38). The shares still possess upside due to its leverage to an oil price recovery and its massive inventory of drilled -- but -- uncompleted wells in the Bakken.

Newfield Exploration Co. (NFX) has seen its shares price move more than 12% higher over the past month after the company once again posted solid quarterly results driven by its sixth production beat in a row, highlighting the strength of its asset base.

We are favorable on Newfield due to: 1) its recently released well data shows that production profiles are improving in the Anadarko Basin, 2) its STACK resource play has proved itself to be one of the most economic basins in the United States, 3) Newfield has cleaned up its balance sheet and is now prepared for weak oil prices throughout 2016 and 2017, 4) it continues to de-risk its acreage, and 5) risk-reward profile is attractive.

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