Deep Dive: These U.S. oil stocks are soaring after OPEC’s cut — and more gains are on the way

OPEC’s decision to cut oil production for the first time since 2008 triggered euphoria in the stock market Wednesday. And pending earnings-estimate increases from analysts ought to set a floor under the energy sector and support even higher prices for oil stocks.

West Texas crude oil for January delivery CLF7, +8.29%  jumped more than 8%, closing near $49 a barrel.

Among the 36 energy stocks in the benchmark S&P 500 Index SPX, -0.27% 16 were up at least 10% on Wednesday. Here they are:

Company Ticker Industry Closing price – Nov. 29 Closing price – Nov. 30 Price increase
Marathon Oil Corp. MRO, +20.80% Oil and Gas Production $14.95 $18.06 21%
Transocean Ltd. RIG, +17.06% Contract Drilling $11.02 $12.90 17%
Newfield Exploration Co. NFX, +15.65% Oil and Gas Production $39.10 $45.22 16%
Murphy Oil Corp. MUR, +15.26%   Oil and Gas Production $29.42 $33.91 15%
Anadarko Petroleum Corp. APC, +14.94% Oil and Gas Production $60.16 $69.15 15%
Devon Energy Corp. DVN, +14.63% Oil and Gas Production $42.16 $48.33 15%
Hess Corp. HES, +14.09% Oil and Gas Production $49.05 $55.96 14%
Concho Resources Inc. CXO, +12.32% Oil and Gas Production $127.33 $143.02 12%
Helmerich & Payne Inc. HP, +11.96% Contract Drilling $67.57 $75.65 12%
Cimarex Energy Co. XEC, +11.20% Oil and Gas Production $123.99 $137.88 11%
Halliburton Co. HAL, +11.09% Oilfield Services & Equipment $47.79 $53.09 11%
EOG Resources Inc. EOG, +10.90% Oil and Gas Production $92.44 $102.52 11%
Noble Energy Inc. NBL, +10.07% Oil and Gas Production $34.67 $38.16 10%
Pioneer Natural Resources Co. PXD, +10.00% Oil and Gas Production $173.67 $191.04 10%
Chesapeake Energy Corp. CHK, +9.89% Oil and Gas Production $6.37 $7.00 10%
ConocoPhillips COP, +9.70% Oil and Gas Production $44.23 $48.52 10%
Source: FactSet

So now the question is, how much higher can they go? The following chart shows that the sector has recovered quite a bit from its bottom in January, though it’s still much lower than it was before the financial crisis hit in 2008 and before the current cycle began in July 2014 after U.S. shale-oil producers had altered the competitive landscape:

A 10-year chart for the S&P 500 oil sector shows the effects of the 2008 financial crisis, and the sustained drop that began in July 2014.

With OPEC’s action, a revised 3.2% GDP growth rate for the U.S. economy in the third quarter and an ADP report showing 216,000 net jobs added during November, a roaring economy could provide strong support for higher oil prices.

Before the announcement by the Organization of the Petroleum Exporting Countries, Phil Flynn, a senior market analyst at Price Futures Group, said in his daily Energy Report that if cartel members were to comply with an agreement for a production reduction of 1.1 million barrels a day, “we should see oil head back toward $60 a barrel.” OPEC agreed to slash production by 1.2 million barrels a day.

The potential for another $10 increase in the price of oil, along with all the positive economic indicators, should prompt analysts to raise earnings estimates and price targets for oil companies. After all, during periods of market turmoil, analysts try to “get ahead” of the wave. So we may still be in an early period for the oil-stock rally.

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