Why Are Oil Stocks Going Up This Week?
Oil stocks and prices were spiking on Tuesday, helped by positive news regarding vaccine trials and an EU stimulus deal. This takes the oil price to levels last seen when an oil price war erupted earlier this year in March between Russia and Saudi Arabia. With oil prices showing signs of rebounding, many investors are jumping to buy oil stocks amid steadily rising oil prices.
While many tech and consumer stocks have recovered in the second quarter, the oil and gas industry remains stuck in an entanglement of oversupply. Despite having oil producers to cut output sharply, a glut of crude in storage continues. That suppresses the industry’s ability to ramp output without cratering prices again. Of course, the stimulus news is very much welcome. That is because it is likely to increase demand and boost economic activities. And all these bode well for the medium-term outlook for the demand for oil.
Something to keep in mind, however, is that volatility is likely to stay. As we know, coronavirus cases are not slowing down particularly in the US, Brazil and India. And certain countries that previously were able to contain the viruses are seeing a resurgence in cases. When these coronavirus cases continue to rise, this will be a drag on global growth and dampen the hope for economy reopening. Now that the oil and gas industry is showing signs of rebound, let’s take a closer look at some interesting plays in the sector.
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Top Oil And Gas Stocks To Buy Now [Or Avoid]: Devon Energy
Shares of Devon Energy (DVN Stock Report) jumped 10.5% after Simmons Energy upgraded the stock to an overweight rating. Now, oil prices have recovered to above $40 per barrel. Support from crude oil hedges and a cash infusion from asset sales appear to be driving DVN stocks to be on the move again. In my personal opinion, the company is now in a better position to fully fund its capital expenditures. Or at least it has a better chance to do so than when the oil prices were much lower.
The company might not be in the best position to target growth anymore. At least it’s more appropriate to wait until the oil price recovers even more. Instead, the company will predominantly work on its highest-return oil-producing acreage. This might be a better strategy in a low oil price environment. That’s because a number of oil producers might find it difficult to generate enough cash flow to fund their capital expenditures. And for some, they might have to depend on debts to meet the shortfall. With strong balance sheets and $750 million receivables from the asset sales, Devon Energy is well-positioned to weather through the volatility that comes with the pandemic. Having said that, are DVN stocks the best oil and gas stocks to buy or sell?
Top Oil And Gas Stocks To Buy Now [Or Avoid]: First Energy Corporation
First Energy Corp (FE Stock Report) just cratered 17% on Tuesday. The stock plunged after the report of a bribery scandal in Ohio. According to NPR reports today, FBI agents arrested Ohioan House Speaker Larry Householder on Tuesday morning. The Ohio Republican chairman, a political advisor, and two paid lobbyists orchestrated a single alleged illegal scheme to have Ohioan taxpayers bail out a pair of troubled nuclear power plants operated by FirstEnergy in the state. In total, it is reported that the political donations and bribes to parties involved may have totaled as much as $60 million.
So, what does this all mean for FE stock? Okay, first of all, investors have to keep in mind that it is just speculation as of now until proven. Assuming that even if the stakeholders are guilty, the company is guilty of absolutely nothing here. Nonetheless, it is not surprising that investors are selling FirstEnergy stocks in case that there’s more to this plot. If so, it seems like the stock is not out of the woods anytime soon. While the investigation may provide a negative impact on the image of the company, there has been no material impact so far. So, is it a case of dislocated share prices for FE stock? With oil prices recovering, would it be a good strategy to buy FirstEnergy stock at this instance?