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Macquarie Group Ltd (ASX: MQG) predicting oil rebound in December and tips this as the best stock to buy

Our market is regaining its mojo with most sectors trading in the green today as the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index jumped 0.7% in after lunch trade.

Not even an overnight slump in the oil price to under US$60 a barrel can dampen the party with most energy stocks posting gains or holding their ground.

The Beach Energy Ltd (ASX: BPT) share price and Oil Search Limited (ASX: OSH) share price are trading more than 1% higher at the time of writing, while Santos Ltd’s (ASX: STO) share price is flat at $7.30 and Woodside Petroleum Limited’s (ASX: WPL) share price is down 0.8% at $31.28.

There’s a building sense of anticipation that the oil price could be bottoming and is set to bounce from next week.

Oil ready to fire up

The analysts from Macquarie Group Ltd (ASX: MQG) is the latest expert to support this belief with the broker issuing a note today predicting that the oil price will start running higher into the calendar year-end and through to early 2019.

“With oil prices down ~28% from the beginning of October, our US team sees a relief rally in pricing, which will have positive implications on our coverage,” said the broker.

“Our US team sees support for oil prices in the near term, driven by an end to the refinery turnaround season (+3.5mmbpd) in the US and colder weather in the Northern Hemisphere, both supporting demand, whilst managed money liquidations have generally run its course.”

Further, Macquarie believes OPEC will succumb to cutting production despite jawboning from US President Donald Trump.

The oil cartel is likely to reduce output by around 1 million barrels a day at the G20 meeting tomorrow or at the next OPEC meeting in Vienna on December 7.

There’s potential for the cartel to cut by 1.5 million barrels a day even, according to Macquarie. That is above what the market is expecting and will trigger a big jump in the commodity.

The best oil stock to buy

The stock with the greatest leverage to an oil price run is Oil Search, according to Macquarie.

“We see OSH having the greatest leverage to near-term oil upside and catalysts through the drilling

of Muruk-2 in PNG, and the Pikka-C in early 2019,” said the broker who rates the Oil Search its top pick in the sector with an “outperform” recommendation and $9.60 price target.

“We came back from the site tour to Alaska believing the market is not reflecting the potential in Alaska, but see the 1H19 catalysts unlocking significant value.”

The broker also has an “outperform” on Santos with a price target of $7 a share, although it is urging investors to dump Woodside.

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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