Upward price pressure and uncertainties are evident in the oil market. And given the commodity’s high volatility, fundamentally weak stocks in this space are at the risk of a downturn. Indeed, oil & gas stocks Northern Oil and Gas (NOG) and Genesis Energy (NYSE:) have recently been downgraded by analysts. So, we think these stocks are best avoided now.Rising energy prices have lately delivered significant returns for oil & gas producers. However, despite optimistic price expectations, uncertainty reigns in the forward market. And it will likely take a while for U.S. independent producers to reverse the supply cuts implied last year and to operate at their pre-pandemic capacity. A senior equity analyst at Siebert Williams Shank & Co., Gabriele Sorbara expects U.S. shale oil companies to remain in “maintenance mode” regarding drilling and completing new wells.

Furthermore, producers signed contracts at much lower oil prices to hedge against the negative oil prices last year. Drilling budgets need to increase 54% to more than half a trillion dollars to avoid a future supply crisis. Recently, President Biden’s administration had called on OPEC to increase supply and asked for cooperation from oil companies to curb price increases.

Given the uncertainties surrounding the oil market, we believe fundamentally weak stocks with bleak long-term prospects, Northern Oil and Gas, Inc. (NOG) and Genesis Energy, L.P. (GEL), are best avoided now. Analysts have recently downgraded these stocks.

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