U.S. oil stocks are poised to capitalize on a tightening global crude market as a result of recent developments at the OPEC+ summit.
The combination of Saudi Arabia’s commitment to implement additional output cuts and the extension of voluntary cutbacks by OPEC+ nations has created a favorable outlook for oil prices, at least in the short term. Oil prices rose 2.5% on Monday, with a barrel of WTI crude jumping to $73.70.
U.S. Oil Stocks Eye Bullish Momentum Amidst OPEC+ Meeting Outcomes
The OPEC+ meeting held on June 4 produced a moderately bullish market reaction as a consequence of three significant drivers:
- Saudi Arabia’s promise to implement an extra million barrel a day of unilateral “extendible” output cut in July, indicating a tight stance.
- The extension of voluntary production limits by the nine OPEC+ countries until December 2024, as opposed to the previous deadline of December 2023.
- A planned redistribution of output baselines in 2024, allowing countries struggling to meet their goals to transfer them to nations with abundant spare capacity, an action that may foster greater group cohesion.
Goldman Sachs: Saudi Arabia’s Production Cut Boosts Oil Market, Mitigates Downside Risks
Daan Struyven, a commodity analyst at Goldman Sachs, provided important insights on current oil market trends:
- The additional production decline by Saudi Arabia is anticipated to have a significant impact on the oil market, possibly resulting in a $1-$6 per barrel price increase. From 1 to 6 months, the duration of the trim will determine the magnitude of its effect.
- The rapid execution of Saudi Arabia’s production cut, along with low stock levels and a firm commitment from the Saudi Energy Minister, demonstrates the group’s desire to offset investor short positions and leverage producers’ pricing power.
- The meeting’s relatively bullish outcome mitigates potential downside risks to Goldman Sachs’ December 2023 price projection of $95 per barrel, which has been reiterated.
5 U.S. Oil Stocks Set To Gain From Rising Oil Prices
Valero Energy Corp. VLO
- Valero Energy is a global leader in petroleum refining and marketing, operating 15 refineries and a network of fuel distribution channels.
- Valero Energy has one of the most appealing valuations among U.S. energy stocks right now. The company trades at 6.5 times its predicted earnings for the next year (12-month forward P/E ratio), the lowest among large-cap U.S. oil stocks, according to Benzinga Pro data.
- Its performance year to date (as of June 2) is negative by 14%.
Marathon Oil Corp. MRO
- Marathon Oil is an exploration and production energy company, focused on crude oil and natural gas. With operations worldwide, Marathon Oil is committed to innovation and sustainable energy solutions.
- Marathon Oil is currently trading as one of the most undervalued U.S. oil companies relative to Wall Street analyst predictions, with a 41% gap between current prices and the median analyst target.
- The company also benefits from a nearly 70% EBITDA margin, which is among the highest in the oil and gas sector.
Occidental Petroleum Corporation OXY
- Occidental Petroleum is a U.S. energy company that is regarded as highly sensitive to oil prices, since a large portion of its operations are concentrated on oil production and exploration.
- The company’s forward P/E ratio is 11, its EBITDA margin is 54%, and it trades at a 13% discount to the median analyst price target.
- This oil and gas company’s stock is a favorite of famed investor Warren Buffett. Since 2019, Buffett’s Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) has invested in OXY, and currently owns approximately 23% of the company.
Callon Petroleum Corp. CPE
- Callon Petroleum is an independent oil and natural gas exploration and production company, which primarily focuses on oil production.
- Rising oil prices could provide a lift to Callon Petroleum shares for two clear reasons. First, the company is one of the most shorted oil stocks in the U.S. (with 16% short interest), and that may result in a short squeeze, driving the stock price higher. Second, Callon Petroleum’s exceptionally low forward P/E ratio of 3.8x indicates an undervalued status, making it an appealing investment opportunity.
HighPeak Energy, Inc. HPK
- HighPeak Energy is an oil and gas exploration and production company, which focuses on the acquisition, development, and production of oil and natural gas reserves primarily in the Permian Basin.
- Shares of HighPeak Energy currently trade 63% lower than their 52-week highs (the largest drop in the sector), and are down 41% year to date.
- The company has extremely low forward P/E multiples (4.5x), a high EBITDA margin (78%), and a large gap versus the median analyst target (195%).