Oil stocks to watch: Will oil prices remain inflated?
Global macroeconomic factors pushed the prices of Brent crude to $130 a barrel on Monday, reaching a peak of $139.13 at one point overnight. The surge marked the highest point of Brent crude prices since July 2008.
The US oil benchmark West Texas Intermediate (WTI) crude futures increased to $130.50 at one point on the evening of 6 March, marking its highest since July 2008. WTI futures hovered around $116 a barrel at around 9:20am ET on 6 March.
The surge was led by the ongoing conflict between Ukraine and Russia, tough sanctions by the US, EU and several other countries on Russia for its military actions in Ukraine, the potential ban of Russian oil from global markets, and a delay in talks of the possibility of Irainial oil entering international energy markets.
What factors are affecting oil prices right now?
There are three major factors affecting oil prices at present.
First, the ongoing war between Russia and Ukraine that created economic uncertainty and volatility. Russia is the world’s second biggest producer of crude oil after Saudi Arabia and a supplier of a third of Europe’s energy needs.
Second, the possibility of the US and EU banning the import of Russian oil. US Secretary of State Antony Blinken said on 6 March that the US was in discussions with its European allies to ban Russian crude imports while “maintaining a steady global supply of oil”, according to an interview of Blinken on NBC’s Meet the Press show.
Third, and finally, oil prices were pushed by the delays in the potential revival of Iranian crude to global markets. This revival will be marked by the resumption of Iran’s 2015 nuclear deal with world powers, specifically the P5+1, the US, UK, France, China, Russia and Germany.
Iran’s development of nuclear weapons had alarmed world powers, leading to the placement of sanctions on the country. In return, Iran had entered an accord with the world powers in 2015, under which it agreed to lower its sensitive nuclear activities and have global inspectors inspect its nuclear program in exchange for lifting the economic sanctions.
Under the long-term deal, all nuclear-related sanctions on the country were removed and it was able to resume selling oil in global markets, with the help of the global financial system for trade. However, the former US president reinstated all US sanctions on Iran in May 2018, and tightened them in 2019.
If the talks are followed through successfully, the US may waive its sanctions on Iranian oil, which could raise the flow of crude globally. A delay in these talks thus pushed oil prices higher in recent times.
Can oil prices hold their momentum?
Oil prices are swayed by supply and demand. Higher supply of the commodity could theoretically lower prices. Taking a look at the current situation, one may note that the factors are aligned to boost oil prices.
The US, EU and several other countries are placing tougher sanctions on Russia to meet the ultimate goal of making it impossible for Russian President Vladimir Putin to cover the expenses of the ongoing military assault.
One of these factors which could prove to be a major blow to Russia is the proposed ban on Russian fossil fuels. This move is aimed at lowering the dependency on the country’s oil. Should the ban come into effect, the global oil market could be looking at a 5 million barrel shortfall, pushing oil prices to $200 per barrel, according to Bank of America analysts.
Oil stocks to watch
Given the surge in oil prices recently, investors should keep a close eye on oil stocks and what factors are driving their businesses.
The oil stocks and comments in this article do not constitute investment advice. This article should not be used as such. Always conduct your own due diligence before investing. And never invest or trade money you cannot afford to lose.
Here are the top five oil shares to watch, on the basis of market capitalisation.
Saudi Aramco
Saudi Arabia’s Saudi Aramco (2222) is the largest oil and gas company in the world, topping the list of oil stocks with a market capitalisation of $2.386tn, as stated by CompaniesMarketCap at the time of writing on 7 March 2022.
The company announced on 23 February that it had finalised its second major infrastructure transaction in less than a year with the successful closure of the lease and leaseback deal previously announced on 6 December 2021. The gas pipeline deal was made with an international investor consortium, led by affiliates of BlackRock and Hassana. The consortium acquired a 49% stake in Aramco subsidiary Aramco Gas Pipelines Company for $15.5bn.
The firm entered into 50 new agreements at the In-Kingdom Total Value Add (iktva) forum and exhibition, it said in a 24 January news release. The iktva program aims to raise domestic value creation, maximise long-term economic growth and diversification, and build a global supply chain that allows the development of a globally competitive energy sector in Saudi Arabia.
As of 7 March, 16 analysts rated the stock an average of neutral, as compiled by Investing.com. One analyst rated it ‘buy’, 13 rated it ‘neutral’ and two rated it ‘sell’. The stock has an average price target of SAR36.59 ($9.75) over 12 months, varying from the low price target of SAR24 ($6.40) to the high of SAR47 ($12.53), with a downside of 18.34%.
Exxon Mobil
Texas-based Exxon Mobil (XOM) is the second largest oil and gas firm in the world’s oil industry stocks, with a market cap of $356bn.
The company announced on 1 March the discontinuation of its operations at the Sakhalin-1 project, which it operates on behalf of an international consortium of Japanese, Indian and Russian companies. Exxon Mobil has already begun the process of exiting from the Sakhalin-1 venture. The oil and gas company will also refrain from making any new investments in Russia, in light of Russia’s recent military activities in Ukraine.
The firm decided to make a final investment to expand its carbon capture and storage at its LaBarge, Wyoming, facility. The expansion project is expected to capture up to 1.2mn metric tons of carbon dioxide, in addition to the 6 million to 7 million metric tons captured at LaBarge on an annual basis, Exxon Mobil said in a 25 February press release.
At the time of writing (7 March), Exxon Mobil stock had an average rating of ‘hold’ by 23 analysts, compiled by MarketBeat. One analyst rated it a ‘strong buy’, seven rated it ‘buy’, 13 rated it ‘hold’ and while two rated it as ‘sell’. The stock has an average price target of $74.30, varying from the low price target of $48 to the high of $105.
Chevron
California-based Chevron (CVX) is the third-largest oil and gas sector stocks globally, and boasts a market capitalisation of $308.97bn.
The company announced plans to acquire Renewable Energy Group (REGI) on 28 February. Chevron will acquire the outstanding shares of Renewable Energy Group in an all-cash transaction valued at $3.15bn, or $61.50 a share. The transaction was approved by the Boards of Directors of both firms and is expected to close in the second half of this year.
Chevron’s US-based subsidiary Chevron U.S.A. and Iwatani Corporation’s wholly-owned subsidiary Iwatani Corporation of America plan to co-develop and build 30 hydrogen fueling sites in California by 2026. Under the agreement, Chevron is expected to fund construction of the sites, while Iwatani will operate and maintain the hydrogen fueling sites and provide hydrogen supply and transportation logistics services, Chevron said in a 24 February press release.
The stock had an average rating of ‘buy’ from 25 analysts. Of the total, 19 analysts gave a ‘buy’ recommendation and six gave a ‘hold’, according to data compiled by MarketBeat. The stock has an average price target of $144.30, varying from the low price target of $112 to the high of $173.
Royal Dutch Shell
Netherlands-based Shell (RDS) is the fourth largest company in the global oil and gas industry, with a market capitalisation of £196.60bn.
Shell recently completed the acquisition of energy retailer Powershop Australia. Powershop will operate as a wholly-owned subsidiary of the company under the Powershop brand within the Shell Energy business in Australia, Shell said in a 1 February news release.
The acquisition took place through the 100% acquisition of Meridian Energy Australia Group, Powershop’s parent company, by a consortium of Shell and Australian infrastructure investor and manager Infrastructure Capital Group.
Taking a look at the company’s recent earnings, which were for the fourth quarter of 2021, one may note that the firm reported strong adjusted earnings of $6.4bn, supported by higher commodity prices. Strong cash flow from operations excluded working capital of $11.1bn while net debt came down to $52.6bn by the end of 2021.
The stock had an average rating of ‘buy’ on the basis of 10 analyst ratings, as compiled by MarketBeat, as of 7 March. All the 10 ratings were a ‘buy’. The stock has an average price target of $2,326.40, varying from the low price target of $1,915 to the high of $3,000.
PetroChina
Beijing’s PetroChina (PTR) is the fifth-largest company in the global oil and gas industry, with a market cap of $160.38bn.
The company won four Asian excellence awards at the 11th Asian Excellence Awards 2021 organised by the Corporate Governance Asia magazine. The four accolades were Best Investor Relations Company, Best Environmental Responsibility, Asia’s Best CFO and Best Investor RelationsProfessionals, the company said in a December 2021 press release.
In addition, the firm also recorded a revenue of RMB 1.88tn ($297.58bn) in the first three quarters of 2021, marking a surge of 31.8% on a year-on-year basis, the firm said in a press release dated 28 October 2021.
Net profit soared 646.3% to RMB 75.13bn from the same period in the previous year. The company’s financial position improved owing to the significant growth in free cash flows in the January-September 2021 period.
The stock had an average rating of ‘hold’ on the basis of seven analyst ratings, as compiled by MarketBeat as of 7 March. One analyst gave the stock a ‘strong buy’, two gave it a ‘buy’, three ranked it a ‘hold’ and one ranked it as a ‘sell’. The stock has an average price target of $36.18, varying from the low price target of $4.35 to the high of $68.
When considering whether to invest in an oil company’s stock, you should always do your own research, considering the outlook and relevant market conditions. A number of factors dictate whether stock prices rise or fall, including the company’s fundamentals and broader macro-economic factors. There are no guarantees. Markets are volatile. You should conduct your own analysis, taking in such things as the environment in which it trades and your risk tolerance. And never invest money that you cannot afford to lose.
FAQs
Are oil stocks a good buy?
Oil stocks may make a good buy at the moment, given the surge in oil prices on the basis of several global macroeconomic factors. This is not investment advice. Please conduct your own research before purchasing any equity in the oil and gas industry.
Why are oil stocks up?
Oil stocks are up due to the continued Russia-Ukraine conflict, Iranian talks over the 2015 nuclear deal, and the US and EU’s proposed ban on Russian oil.
What oil company stocks to buy?
Readers may consider the aforementioned five stocks from an investment perspective, given these are the largest oil and gas companies in the world and have robust financial strength. Please conduct your own due diligence before investing.
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