A ray of light is starting to creep into the oil price analysis, as the lockdown measures are gradually eased around the world. Crude oil markets continue showing some underlying strength, with the West Texas Intermediate (WTI) closing in fresh May highs of $30.
Oil stocks in May 2020 have picked up quite a bit already. Looking at the current oil price chart, traders are now asking themselves whether it is a good idea to trade the WTI or Brent Crude, or invest in oil stocks?
Although the oil price has risen compared to the unprecedented lows in April, many big oil companies have seen their stocks plunge. BP’s oil stocks, for example, are down 33 per cent since the beginning of the year. Still, when it comes to trading individual oil stocks, which are the ones to watch and which are the ones to avoid? Read on to check the major oil companies and see whether they can bring you some trading opportunities.
Oil price analysis: WTI surges above $30 in fresh monthly high
In April 2020 we witnessed an unbelievable collapse of the oil price: the major international oil benchmark – WTI – has plunged to a negative territory of minus $40 per barrel amid the deepest fall in oil demand in 25 years. The sharp drop was caused by the coronavirus pandemic, oversupply and lack of storage.
By the end of last week WTI futures surged over $30 per barrel which is a strong recovery. The oil market has received some balance since last month’s fluctuations, removing downward pressure on both major benchmarks.
According to Jasper Lawler, head of research at London Capital Group, "it’s a far cry from the negative prices of a month ago that everyone understood wasn’t anything close to a proper valuation. The surprise drop in US crude stockpiles last week means storage is no longer the central issue."
The US Energy Information Administration revealed that oil stock declined 700,000 bpd, eliminating concerns about the lack of storage capacity. Collective measures of the OPEC+ alliance to cut 9.7 million barrels per day brought some relief to the oversaturated market. The UAE, Kuwait and Saudi Arabia also voluntarily increased their commitments to cut oil production last week.
The cautious re-opening of global economies contributes to the oil market resurgence, stimulating growing demand for oil.
Oil stocks analysis: top 3 oil stocks to watch in May
This ultra-volatile environment significantly affects oil stocks, putting them under pressure. However, they still provide some attractive trading opportunities. Today we have picked the top 3 oil stocks to watch in May and decide whether to include them into your portfolio: BP, Frontline and ConocoPhillips.
BP: profit fell by two thirds, dividend unchanged
BP is the tenth largest company in the FTSE 100 and is involved in the exploration, refinery and delivery of energies. Investors were closely watching the company’s long-awaited Q1 2020 earnings results to see the impact of falling demand and falling oil prices on its performance.
There had been calls for big oil companies to cut their dividends. Equinor (EQNR) and Royal Dutch Shell (RDS. B), for example, have both reduced their dividend in recent weeks. BP (BP), however, has kept its dividend yield at the same level, which is 11.6 per cent so far. Still, we have seen the BP share price under pressure as some analysts are worried about the level of debt the company has, which is at five-year high.
When it came to its quarterly results, BP saw its profit fall by two thirds compared to the same period last year, but these profits still exceeded the markets’ expectations. BP’s profits plunged 67 per cent to $800 million from $2.4 billion in the first quarter of 2019.
The BP chart shows it had been in gradual decline for much of the last 12 months. Like many oil companies it fell off a cliff during the first few months of 2020 and traded as low as about £2.25 until we saw a bounce back.
Today, the BP shares are traded at £3.21 which is 76 per cent lower than its 52-week high of £5.65 and 30 per cent higher than its 52-week low of £2.22. According to the latest consensus ratings, the majority of analysts agree that BP stock is a strong buy in a long-term perspective.
Frontline: boosted Q1 performance due to increased tanker rates
The Norwegian US-listed company specialises in oil tanker storage, moving oil around the world. Although Covid-19 spelt doom for the shipping industry, the increase in tanker freight rates boosted the Frontline’s first quarter performance.
The cost of storage was one of the main reasons for the recent oil plunge to minus $37 per barrel. In times of oversupply and lack of demand the storage prices went up and the Frontline shares almost doubled as tanker costs soared.
In early March 2020 the FRO stocks were trading at around $6.0 and touched $10.95 in the third week of April. Today, they are dipping back to about $7.0, which has been a pretty good support level. If we see some stability coming down here, it may be time for the stock to reverse and bring some buying opportunities.
According to CNN Business, offering a 12-month share price forecast for Frontline, the stock enjoys a “Buy” rating with the median price target of $12.00, which represents a 60.86 per cent increase from the last price of $7.46.
ConocoPhillips: still a buy with limited downside ahead
Looking for the oil stocks to invest in right now, we see plenty of oil companies like BP taking a hit in the most recent quarter of 2020. ConocoPhillips, a major US oil and natural gas exploration and production company, reported that its revenues were more than half down on what they had been in the same period last year.
The company reported a first-quarter 2020 loss of $1.7 billion or $1.60 per share, compared with first-quarter 2019 earnings of $1.8, or $1.60 per share. The adjusted earnings were $0.5 billion, or $0.45 per share, compared with $1.1 billion, or $1.00 per share, in 2019. ConocoPhillips also announced deeper production cuts: we are still seeing a drop in demand because of shutdowns due to the coronavirus.
ConocoPhillips share price has been pretty much in decline for the best part of 18 months, sliding down from about $80 per share. This year the share has been trading at $67 in January, and traded as low as almost $20.80 in March 2020. However, the COP shares rose 36.7 per cent in April. This move partially reversed the losses the company experienced in March, when they fell by 36.4 per cent. Today, it bounces back up to $43.50 and analysts wonder if this is going to continue.
Although ConocoPhillips’ shares have lost 37.1 per cent of their value since the start of the year, analysts believe it can be one of the oil stocks in 2020 with high potential for profit.
What oil stocks to invest in May 2020 and how?
Having mentioned the top oil stocks to watch, let’s take a closer look at the latest oil price analysis and see how to trade them with CFDs in a short video by Capital.com market strategist David Jones.
Should I invest in oil stocks now?
If you are still bothered about whether it is a good time to invest in oil stocks now, you should consider an alternative option. The Oil Portfolio index could be an interesting way to get an exposure to oil companies, whether you think they might go up or down without having to pick one particular company or trade crude oil directly.
To make it easier for trader to benefit from the oil market’s volatility, it offers the combination of the eight leading US Energy stocks, including Chevron (CVX), Exxon Mobil (XOM), ConocoPhillips (COP), Occidental Petroleum (OXY), Canadian Natural Resource Ltd (CNQ), Apache (APA), Noble Energy Inc (NBL) and Whiting Petroleum (WLL). The index is weighted to make equal impact for all shares and serves as the market sentiment indicator towards US Oil market growth.