Oil prices are at present trending higher as Saudi Arabia and Russia extend output cuts. Improvement in China’s economic condition coupled with hopes that the Federal Reserve will pause interest rate hikes soon also triggered a rally in crude prices.
Oil Prices Scale Upward
The West Texas Intermediate (WTI) crude increased 1.3% to $86.69 a barrel on Sep 5, its highest level since Nov 15, 2022.
When it comes to the global oil benchmark, Brent crude jumped almost 3.6% to more than $90 a barrel in its last trading session and settled at its highest level since Nov 18, 2022.
Oil prices moved northward following bullish technical patterns. On Aug 17, the prices of WTI and Brent crude formed golden crosses, a tell-tale sign that oil prices are poised to rise sharply across the globe.
Many analysts are now expecting oil prices to break several resistance levels and rally to $100-102 a barrel shortly.
What Led to the Rise in Oil Prices?
The tightening of supply through production cuts by major oil producers boosted the price of oil lately. Saudi Arabia recently said that the country is willing to extend its voluntary production cut of 1 million barrels per day for another three months till the end of this year.
Similarly, Alexander Novak, Russia’s Deputy Prime Minister categorically said the country is willing to curb its oil exports by 300,000 barrels a day until the end of December 2023.
China’s lackluster economic growth for more than a year, meanwhile, didn’t bode well for global oil prices. However, an unexpected expansion in the world’s biggest oil importer’s manufacturing activity in August boosted oil prices as well. After all, any economic expansion will provide China the wherewithal to import oil and perk up demand.
At the same time, the likelihood of a pause in interest rate hikes by the Fed also lifted global oil prices. This is because higher interest rates generally tend to elevate costs and slow down the economy, which translates to less demand for oil.
Nonetheless, the Fed seems largely done with its aggressive monetary tightening measures as the labor market cooled down last month.
How to Play Oil’s Northward Journey
It’s quite apparent that major oil producers and explorers, pipeline owners, and rig operators will witness an improvement in their profit margins as oil prices move northward. Prominent among them are Evolution Petroleum, and Northern Oil and Gas.
Evolution Petroleum acquires and develops oil and gas fields. The company has a Zacks Rank #2 (Buy). The company’s expected earnings growth rate for the current year is 15.6%. EPM shares have gained 31.1% over the past five years.
Northern Oil and Gas is also engaged in the acquisition, exploration, development, and production of oil and natural gas properties. The company has a Zacks Rank #3 (Hold). The company’s expected earnings growth rate for the current year is 12.3%. NOG shares have gained 15.9% over the past five-year period.
It’s also worth mentioning that the prices of indispensable commodities increase as crude oil prices move north. This, in turn, leads to a rise in the price of gold as it acts as a hedge against inflation.
As the bullion metal glitters, shares of gold mining companies like Barrick Gold are well-positioned to gain traction.
Barrick Gold is the largest gold mining company in the world and has mining operations in the United States. The company has a Zacks Rank #3. The company’s expected earnings growth rate for the current year is 18.7%. Its estimated earnings growth rate for the next year is 28.1%. GOLD shares have gained 4.6% over the past five years.
Barrick Gold Corporation (GOLD): Free Stock Analysis Report
This article originally appeared on Zacks
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