4 Oil Stocks That Had Massive Earnings Surprises In 2017

It has been a wild ride for the energy market in 2017, setting pulses racing for even the steadiest of investors.

Just a few months ago, or until September, the commodity had a very difficult year. In June, U.S. West Texas Intermediate (WTI) fell to nearly $42 a barrel — the lowest in ten months. Since then, the contract has risen about 37%. In fact, WTI hit a more than two-year high of around $59 recently.

Unlike other short-lived rallies over the past three years, we believe the current higher oil prices are a result of improving fundamentals. Declining inventories and the extension of OPEC-led supply cuts until the end of 2018 are the two major factors helping to balance the market and support the strong uptrend.

Production Cut Deal Extension

One of the significant reasons why the U.S. oil benchmark soared revolved around expectations that OPEC and other major producers will agree to expand their output-cut deal beyond March. True to predictions, the coalition prolonged the current dynamic for another nine months to the end of 2018. 

The agreement, now renewed twice, keeps 1.8 million barrels a day (or 2% of global supply) off the market in an attempt to clear a supply glut. While there are several question marks over the degree to which the cartel members are adhering to their quotas, there’s no ignoring the fact that the cuts continue to narrow the market imbalances.

Sharp Inventory Drawdowns

Investors have pinned hopes of recovery over the U.S. Energy Department’s inventory releases that show multiple weeks of strong inventory draws in the domestic crude stockpiles – pointing to a slowdown in shale output. Oil stockpiles have shrunk in 27 of the last 35 weeks and are down more than 85 million barrels since April.

The gradual fall has helped the U.S. crude market shift from year-over-year storage surplus to a deficit. At 448.1 million barrels, current crude supplies are 7.8% below the year-ago period though they are in the upper half of the average range during this time of the year.