The oil patch has been going through a rough phase since the coronavirus scare peaked and almost the entire globe went under lockdown. But black gold probably saw its worst day on Apr 20 as the May contract for U.S. WTI crude oil, which expires on Tuesday, dropped below zero for the first time in history.
However, the contract recovered later and was priced $0.0100 at the time of writing, while the June contract for the commodity was trading at about $19 per barrel.Coronavirus-led demand disruptions have been weighing on oil prices. This along with storage crisis and ample supplies led to the massacre. WTI crude ETFUnited States Oil Fund, LP USO and Brent ETF United States Brent Oil Fund, LP BNO lost 10.9% and 6.9%, respectively, on Apr 20.
Against this backdrop, below we highlight a few investing areas that are likely to surge.
Party Time for Tankers
Since in-land storage is running out, participants have turned to the estimated 400 million barrels of floating storage leading to a solid uptick in freight rates for ships. Some supertankers have been booked to stockpile crude for up to three years, possibly the longest period of time for offshore storage.
The Transportation – Shipping industry currently has a favorable Zacks Industry Rank (placed at the top 23% of total 250+ industries in the Zacks universe). Tankers’ stocks surged on Apr 20 with Zacks Rank #1 (Strong Buy) DHT Holdings Inc. DHT adding 7.5%, Zacks Rank #2 (Buy), Frontline Ltd. FRO jumping 12.7%, and Zacks Rank #3 (Hold) Tsakos Energy Navigation Ltd TNP and Nordic American Tankers Limited NAT gaining 19.1% each.
Forget Oil, Focus on Natural Gas
Per some analysts, with the shutting-in of oil wells (due to low prices), producers will also lose on some associated natural gas production. Plus, forecast of inclement weather both on the east and west coast has probably boosted demand for natural gas. Explorer and producer of natural gas EQT Corporation EQT added 16.4% on Apr 20. Antero Midstream Corporation AM, which operates natural gas gathering pipelines, compression stations, processing and fractionation plants, also surged 18.2%.
Go for Gold Miners
Low oil prices are a plus for miners. Mining companies’ 50% production costs are closely linked to energy prices. Cheap oil despite the biggest output cut deal by the OPEC should work wonders for gold miners’ operating margins.
In any case, gold will be in high demand due to its safe-haven status. Global policy stimulus gives further support to it. Newmont Corporation NEM, one of the world's largest producers of gold with several active mines in Nevada, Peru, Australia and Ghana, has a Zacks Rank #2. VanEck Vectors Gold Miners ETF GDX too added 2.7% on Apr 20.
Great Cushion for India
India, which hosts 1.3 billion people, is the world’s third-largest oil consumer and imports about 80% of its oil requirements. S&P Global Platts Analytics expects Brent crude to trade below $20/barrel over the next couple of months before recovering to $40/bbl by year-end.
Hence, having taken advantage of the prevailing damn cheap oil prices, the country is stockpiling on the liquid commodity as part of the strategic petroleum reserves (SPRs). “India’s combined capacity of 5.33 million mt in three locations in southern Indian – Vishakhapatnam, Mangalore and Padur – is just over half full,” leaving space for more crude storage.
In March, the Confederation of Indian Industry indicated that would save a solid $45 billion on oil imports next financial year. Notably, a $1 decline in the price of crude oil would lower the country's import bill by $1.5 billion. Now, since the pricing crash has aggravated, the favorable impact on India’s foreign currency reserves should be more pronounced. This is likely to provide some relief to the government to fight the coronavirus-led economic fallout.
Investors can take a shot at India investing with Invesco India ETF PIN and iShares India 50 ETF INDY.
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EQT Corporation (EQT) : Free Stock Analysis Report
Antero Midstream Corporation (AM) : Free Stock Analysis Report
Newmont Corporation (NEM) : Free Stock Analysis Report
Tsakos Energy Navigation Ltd (TNP) : Free Stock Analysis Report
Frontline Ltd. (FRO) : Free Stock Analysis Report
DHT Holdings, Inc. (DHT) : Free Stock Analysis Report
Nordic American Tankers Limited (NAT) : Free Stock Analysis Report
United States Oil ETF (USO): ETF Research Reports
United States Brent Oil ETF (BNO): ETF Research Reports
VanEck Vectors Gold Miners ETF (GDX): ETF Research Reports
Invesco India ETF (PIN): ETF Research Reports
iShares India 50 ETF (INDY): ETF Research Reports
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