How Will Oil Stocks Respond to the U.S. Moving Into Middle Eastern Markets?

Rising U.S. exports coupled with tensions in the Middle East could spark volatility for oil and for stocks like Enbridge Inc. (TSX:ENB)(NYSE:ENB) in 2018.

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Oil prices slipped back below $62 amid a rout in global stock markets. A surprise report also showed that the United States sold oil to the United Araba Emirates in December 2017. A tanker carrying American condensate, a light crude oil, traveled from Houston the Persian Gulf.

Shipments from the U.S. reached 1.53 million barrels of oil a day in November 2017. The U.S. Energy Information Administration (EIA) has projected that the U.S. could become a net exporter of petroleum by 2029. The position of the U.S. as the premier oil producer in the world has put increasing pressure on the Organization of Petroleum Exporting Countries (OPEC).

OPEC extended its production cut to the end of 2018, and early reports indicate that members are considering a further extension into 2019. Saudi Arabia, the second-largest oil producer in the world behind the U.S., has ambitions to move into renewables to prepare for a future that will see the nation forced to reduce its dependence on oil exports. The country hopes to boost renewables to 10% of its power generation by 2023.

Worsening tensions in the Middle East could feasibly disrupt price trends going forward. The U.S. revealed on February 7 that its forces attacked Syrian government troops in response to Assad troops reportedly planning an attack on rebel headquarters. The rebel fighters were being trained by American advisors. The U.S. strike killed over 100 Syrian soldiers.

Northern Syria has been the source of intense developments in the region in recent weeks. First there was the beginning of a Turkish military operation in the Afrin region. The Turkish government has grown increasingly frustrated with the advances of the Kurdish Workers’ Party, a group it has been fighting with in southeastern Turkey for decades. The Kurds have received U.S. support in their fight against the Islamic State.

For Canada, the fifth-largest oil producer in the world, falling oil prices have exacerbated what has been a rough start for the S&P/TSX Index in 2018. This could also be an opportunity for investors to buy into dips for some of the best dividend plays on the TSX. OPEC members will still be able to throw around their weight beyond 2018, but the noose is definitely tightening.

Enbridge Inc. (TSX:ENB)(NYSE:ENB), the Calgary-based energy multinational, has seen its stock declined 10.1% in 2018 as of close on February 7. Enbridge still offers a quarterly dividend of $0.67 per share, which now represents a 6% dividend yield.

Encana Corp. (TSX:ECA)(NYSE:ECA) stock has fallen 17% in 2018 thus far. The Calgary-based oil and gas company is set to release its fourth-quarter results in the coming weeks. In early January, Encana projected that its fourth-quarter core production would beat original estimates. Encana projects that production from its North American basins increased 31% in the fourth quarter — over the 25% expected previously.

Canadian Natural Resources Limited (TSX:CNQ)(NYSE:CNQ) has dropped 14% in 2018. In the 2017 third quarter, Canadian Natural Resources posted net earnings of $684 million compared to a $326 million loss in the prior year. The company last delivered a dividend of $0.28 per share, representing a 2.8% dividend yield.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.

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