4 Oil Stocks To Buy As Crude Hits 6-Month High

A combination of supply disruptions and a turnaround in the stance of a major investment bank boosted oil prices to a six-month high on Monday. A demand supply gap had pushed prices down for an extended period. This was an outcome of a fall in demand to worldwide economic sluggishness and oversupply from major oil producing nations.

However, the continuing impact of supply side disruptions and the possibility of a further decline in shale output have changed the outlook on oil. The rest of the year is likely to see higher prices which make this a good time to add oil stocks to your portfolio.

Supply Shortages Spark Price Gains

Oil prices rebounded on Monday after Goldman Sachs Group, Inc. (GS) said that the oil market is facing a deficit in crude production following production disruptions in Nigeria and Canada. A series of recent militant attacks on oil infrastructure in Nigeria reduced its crude production to 1.69 million barrels per day (bpd), hitting its lowest level in 22 years.

Further, a wildfire that broke out in Fort McMurray, Canada dragged crude output to 1.6 million bpd. Goldman also said that "the oil market has gone from nearing storage saturation to being in deficit much earlier than" it expected.

A few months ago, Goldman Sachs projected that oil prices would remain around $20 per barrel following crude oversupply. However, it said yesterday that WTI crude may reach near $50 per barrel in the second half of this year and might experience modest increases next year. Both the WTI crude and Brent crude settled at their highest level since Nov 3.

EIA Projects Decline in Shale Output

Additionally, the U.S. Energy Information Administration (EIA) said that shale production is likely to decline in June. This would be the eighth consecutive monthly drop in prices. According to the EIA, output from shale producers may decline by around 113,000 barrels per day (bpd) to 4.85 million bpd.

This is a direct outcome of a decline in prices extending over two years. Consequently, profitability of shale drillers has been grievously hit, leading to such a projection. The EIA believes that production at the Eagle Ford shale play will decline by 58,000 barrels next month. The Bakken Shale play will experience the second largest decline in output, a projected fall of 28,000 barrels per day.    

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