On Monday, political turmoil in Saudi Arabia boosted oil prices to their highest level in two and a half years. The country’s 32-year old crown price, Mohammed Bin Salman, ordered the arrest of much of the country’s top leadership. Such a move was apparently necessary to tackle corruption even as the young prince attempts to modernize the Saudi economy.

As a result, oil prices gained, with Brent crude increasing 3.4% to $64.27 a barrel and WTI crude rising 3% to $57.35 per barrel. Further, the oil rally led the Energy Select Sector SPDR (XLE) to advance 2.3%, becoming the biggest gainer among the key S&P 500 sectors.

Though skeptics are already depicting the spike as a temporary one, several factors may combine to boost oil prices for a longer period. Adding stocks from the oil sector to your portfolios looks like a smart move at this point.

Purge to Tackle Corruption or Advance Consolidation?

Since his elevation, the crown prince has been touting his Vision 2030 plan as the best way to channelize the Saudi kingdom’s oil based clout into broad based economic growth. His plans include economic diversification and selling off a near 5% stake in state-owned oil behemoth Aramco. These moves are aimed at making the country more investor friendly by boosting levels of transparency.

Yet there are major hurdles to be cleared before such a listing becomes possible. Allegations abound that a large chunk of the expenses of Saudi Arabia’s royalty show up on Aramco’s books. Meanwhile, Saturday’s purge has been ostensibly aimed at rooting out corruption at the very top.

However, top Middle East analysts believe that this could only be a move to consolidate the young prince’s power. In the process, opposition to his plans could be swiftly removed. But at the same time, the Aramco stake sale may be threatened since investors would be weary of excessive political uncertainty. In this event, a private placement with investors from Russia and China seems more likely.

OPEC Deal, Saudi Turmoil, Rig Count Decline to Boost Prices

In recent months, oil has been steadily recovering from its historic lows, currently trading above $50 a barrel. The recovery has been largely backed by OPEC’s compliance with its landmark production cut deal. On Nov 30, 2016, OPEC signed a landmark deal to curb oil output by 1.2 million barrels a day. On May 25, the cut in oil production was extended until the first quarter of 2018. 

Now, speculations are rife that OPEC could extend the agreement through the end of 2018. Meanwhile, Saturday’s events in Saudi Arabia have injected quite a bit of political uncertainty into the oil price scenario. In fact, a section of market watchers believe that crown prince Salman would need oil prices to rise in order to get the best possible value for the Aramco stake sale.

Meanwhile, Baker Hughes’ closely watched weekly report, the oil rig count has gone down for a ninth week in 12. This implies that U.S. energy firms are cutting down on their capital investment plans. Importantly, this is an indicator that U.S. shale producers are showing signs of slowing down.

Our Choices

The Saudi crown prince’s move to clamp down on an important section of the country’s royalty seems to be a calculated move ahead of the crucial Aramco stake sale. Prince Salman is possibly attempting to consolidate power and boost oil prices at one go during the resulting uncertainty.

Meanwhile, compliance to the OPEC production controls agreement remains high even as U.S. rig counts continue to fall consistently. All these factors will likely to combine to boost oil prices in the days to come, which will make stocks from the sector a lucrative proposition. However, picking winning stocks may be difficult.

This is where our VGM Score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score. 

We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM score.

Ecopetrol S.A. (EC - Free Report) is a Colombia-based integrated oil company. The company's operation includes the extraction, collection, treatment, storage and pumping or compression of hydrocarbons.

Sinopec has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved by 4.6% over the last 30 days.

Hess Midstream Partners LP (HESM - Free Report) owns, operate, develop and acquire a set of midstream assets to provide services to Hess and third-party crude oil and natural gas producers.

Hess Midstream Partners has a Zacks Rank #1 and a VGM Score of B. The Zacks Consensus Estimate for the current year has improved by 1.7% over the last 30 days.

China Petroleum & Chemical Corporation (SNP - Free Report) or Sinopec with its head office in Beijing, China, is one of the largest petroleum and petrochemical companies in Asia.

Sinopec has a VGM Score of B. The company has expected earnings growth of 59.1% for the current year. The Zacks Consensus Estimate for the current year has improved by 5.8% over the last 30 days. The stock has a Zacks Rank #1. 

Noble Midstream Partners LP (NBLX - Free Report) is engaged in crude oil and natural gas exploration and production within the United States.

Noble Midstream Partners has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved by 3.4% over the last 30 days.

EOG Resources Incorporated (EOG - Free Report) is a major independent oil and gas exploration and production (E&P) company, with operations in the United States, Canada, offshore Trinidad, the U.K., China, Canada and select other international areas.

EOG Resources has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved by 21.5% over the last 30 days.