The global oil market remains tight according to Saudi Aramco, the world’s largest oil producer. And that doesn’t bode well for a world that still relies heavily on fossil fuels.
“Today there is available capacity that is extremely low,” Saudi Aramco CEO Amin Nasser tells a conference in London. “If China opens up, [the] economy starts to improve or the aviation industry starts to order more jet fuel, it will erode this additional capacity.”
Nasser warns that oil prices could rise rapidly, again.
“When you erode that spare capacity, the world should be worried. There will be no room for setbacks, interruptions, unforeseen events anywhere in the world.”
If you share Nasser’s opinion, here are three oil stocks to bet on. Wall Street also sees potential in this trio.
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Headquartered in London, Shell is a multinational energy giant with operations in more than 70 countries. It produces about 3.2 barrels of oil equivalent per day, has stakes in 10 refineries and sold 64.2 million tons of liquefied natural gas last year.
It is also a staple for global investors. Shell is listed on the London Stock Exchange, Euronext Amsterdam and the New York Stock Exchange.
The company’s shares listed on the New York Stock Exchange are up 13.6% so far this year.
Piper Sandler analyst Ryan Todd sees an opportunity in the big oil and gas industry. Last month, the analyst reiterated an “overweight” rating on Shell while raising his price target to $80 from $75.
Given that Shell is trading around $50.50 a share today, Todd’s new price target implies 58% upside potential.
Chevron is another big oil and gas company that is benefiting from the commodity boom.
For the second quarter, the company reported earnings of $11.6 billion, which was more than triple the $3.1 billion for the same period last year. Sales and other operating income totaled $65 billion in the quarter, up 81% from a year earlier.
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In January, Chevron’s board approved a 6% increase in the quarterly dividend rate to $1.42 per share. That gives the company an annual dividend yield of 3.6%.
The stock has also enjoyed a nice rally, up 32% in 2022.
Morgan Stanley analyst Devin McDermott has an “equal weight” rating on Chevron (not the most bullish rating), but raised his price target from $187 to $193 last month. That implies 23% upside potential from current levels.
With a market capitalization of more than $400 billion, Exxon Mobil is bigger than Shell and Chevron.
The company also has the best share price performance of the three in 2022: Exxon shares are up 55% YTD.
It’s not hard to see why investors like stocks: The oil-producing giant generates profits and cash flow in this environment of commodity prices. In the first six months of 2022, Exxon made $23.3 billion in profit, a big increase from $7.4 billion in the prior year period. Free cash flow totaled $27.7 billion in the first half, compared to $13.8 billion in the same period last year.
Strong finances allow the company to return cash to investors. Exxon pays a quarterly dividend of 88 cents a share, which translates to an annual return of 3.6%.
Wells Fargo analyst Roger Read has an “overweight” rating on Exxon and a price target of $109, about 10% above where the stock is today.
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