The Best Performing Oil And Gas Stocks – January 2020

The price of crude oil has traded in a relatively tight range over the past year, balancing several conflicting fundamental factors. Going back to late 2018 and through much of 2019, the major macro story was growing pessimism over the global growth environment pressured by the U.S.-China trade dispute uncertainty. On one hand, weaker economic data out of China, Europe, and in the U.S., particularly in industrial activity, kept a bearish outlook on the demand for oil. On the other, OPEC production cuts and more managed exports helped to support the market on the supply side.

(source: Finviz.com)

Indeed, the current price of Brent and the WTI crude oil (USO) benchmarks have traded around the $60 per barrel level since 2017, unable to break out one way or another. Depending on your point of view, crude oil is either in a bull market up over 25% from its lows in Q4 2018, or still with a bearish tilt, considering WTI and Brent benchmarks are down by more than 45% from highs reached in 2014. Let’s not forget about natural gas which is firmly in a bear market currently trading under the $2.00/MMBtu level. The story here is a much more pronounced supply glut.

Nevertheless, there have been some big winners among energy sector stocks that have been able to generate value despite the market challenges. This article takes a look at the top 50 best-performing oil and gas stocks over the past year.

Best Performing Oil & Gas Stock

Our data here is based on the universe of energy sector stocks traded on a U.S. exchange with a market cap above $200 million. The list is diverse with companies represented across the entire supply chain of oil & gas. We filter the results by performance on a total return basis over the past year, while also including returns for the month-to-date period as of January 17th, 2020, and a 6-month lookback. Stated forward-dividend yields are also listed in the table above.

(source: data by YCharts/table author)

Offshore service provider and tanker operator, Teekay Tankers Ltd. (NYSE:TNK) with a market cap of $752 million is the top performer in the group up 168% over the past year, and 125% in just the past 6 months. This is something of a turnaround story, considering the company has suffered steep losses in recent years, and the stock has been extremely volatile. TNK owns tankers, currently benefiting from rising lease rates in recent months. Similarly, Frontline Ltd. (FRO) also operates oil tankers and is up 123% over the past year. Other oil shipping stocks on the list include Scorpio Tankers (STNG) and Ardmore Shipping Corp. (ASC). Renewed tensions in the Middle East since the start of the year have been a bullish theme in this segment more recently.

A pair of Russian energy giants make the list with state-controlled Gazprom PJSC (OTCPK:OGZPY) and PJSC Lukoil (OTCPK:LUKOY), the largest non-state enterprise in the country, up 87% and 48% each, respectively. In this case, an improving macro outlook in Russia with a strengthening Ruble currency has supported the returns over the past year.

Among large-cap U.S. energy firms, we highlight some strong performers among midstream pipeline stocks. Phillips 66 Partners LP (PSXP), ONEOK Inc. (OKE), and Kinder Morgan Inc. (KMI) are up by 40%, 31%, and 27% each over the past year. Despite consistently low gas prices, these companies which also transport and store oil products are benefiting from their market leadership position and generally improving profitability. It appears the market is rewarding quality among pipeline companies. Separately, we note that Hess Corp. (HES), up 37% over the past year is the best performing oil and gas producer among U.S. large-cap firms.

In terms of dividends yields, NGL Energy Partners LP (NGL) with a forward yield 13% on its common shares and USA Compression Partners LP (USAC) at 12% are the highest in the group.

Analysis and Forward-Looking Commentary

We are bullish on oil and energy sector stocks seeing various scenarios for further upside in 2020. The current strong momentum and the risk-on environment in equity markets suggest an improving outlook for economic growth and global trade. It follows that a rebound in macro conditions should support the upside in the demand for energy, driving the price of oil and sector stocks higher. While increasing global energy production and a general supply surplus continue to be the main bearish trends, we see the potential that demand can outperform expectations.

We want to see WTI crude sustain a rally above the $60 per barrel level and view the $65 mark as representing important resistance. A break higher could open the door for momentum towards $80. To the downside, it’s likely going to take a major deterioration of the global macro outlook for the price of oil to move below the all-important $50 per barrel support level. In our view, risks are tilted to the upside.

The environment for natural gas is more difficult, but we think some of the high-quality midstream players as best positioned to survive in the current pricing environment. We expect the price of natural gas to remain pressured and trade below $2.25/MMBtu through 2020.

Takeaway

We like following the top-performing stocks by sector and industry to better understand why a particular company has outperformed. We hope the list above serves as a good starting point for further research. Keep in mind that individual oil stocks can be high-risk and may not be suitable for all investors. Never make an investment decision based on a single metric or much less just the performance history. Take a look at the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) as a good option to gain diversified passive exposure to oil & gas stocks through an exchange-traded fund.