5 Energy Growth Stocks To Invest In

Oil prices are bouncing back on subsiding fears about the effects of Brexit – the short way of saying Britain’s exit from the EU – on crude demand. A weaker dollar, which made the greenback-priced crude cheaper for investors holding foreign currency, also lent support. Last month’s Brexit bombshell surprised investors and sent the commodity to a seven-week low on a strengthening dollar and fears of a global economic slowdown.

In any case, the U.K. constitutes a miniscule 1.6% of global crude demand, so the commodity is unlikely to be too affected by a Brexit vote. Moreover, with core oil fundamentals still unchanged and signs of improving U.S. economy, the commodity is well set for a long-term recovery though one might have to wait for the dust to settle.

The Crude Rally

Crude prices, which reached $110 per barrel in mid-2014, fell to a 12-year low of $26.21 in February as investors worried about the oversupplied market. The commodity’s collapse threatened the industry’s creditworthiness by hurting cash flows, drying up liquidity and pummeling producer’s profit margins.

However, indications that supply was easing helped oil prices rebound some 90% since then.

The surge in benchmark crude is being driven by supply outages in Nigeria, Libya, Venezuela and Canada – countries that hold some of the world’s major sources of crude.

The upward pressure in oil prices also reflect the U.S. Energy Department's recent inventory releases that show crude stockpile builds turning into draws. Things have been further helped by a continued decline in U.S. crude production and drop in oil-directed rigs – indicating a break in shale drilling activities.

All's Not Well, Though

The million dollar question now is whether the rally marks the beginning of a powerful turnaround in oil prices on the back of deep cuts from explorers, or a temporary surge based on optimistic forecasts.

Despite oil’s massive recovery since February, it’s still under $50 – about half the level of two years ago – and far below the breakeven price for many energy companies. Therefore, the commodity is not yet out of the woods and record high inventories amid robust production could still push it to the depths of multiyear lows.

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