The recent oil price rally has been driven by a confluence of geopolitical events and fundamental factors. Geopolitically, increased risk sentiment in the Middle East and Russia, alongside a surge in global production outages, have played a significant role. Oil stocks have benefited from increased market prices as bulls test key $80 resistance.
Drone strikes on Russian refineries and aggressive Houthi strikes on a Russian naphtha vessel further exacerbated tensions, while technical factors such as tests of the 200-day moving average supported the rally. Fundamentally, supply outages have been a primary driver, with disruptions affecting fields that directly impact Brent clearing prices.
Current outages include weather-related issues in the Black Sea and North Sea, political unrest in Libya and the impact of recent sanctions on Russian exports. While these supply issues are expected to be transient, geopolitical risks are anticipated to continue supporting crude prices in the first half of 2024.
Meanwhile, in the U.S., economic data reflects resilience, with strong December retail sales and industrial production exceeding expectations. In China, despite stimulus measures, retail sales fell short and manufacturing PMI remained in contraction territory, highlighting ongoing challenges in the consumer sector.
As the market awaits further developments, attention will be focused on Chinese macroeconomic indicators to gauge demand growth forecasts, particularly in the absence of imminent rate cuts in the U.S. and Europe.
ExxonMobil (XOM)
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ExxonMobil (NYSE:XOM) is a multinational oil and gas corporation headquartered in Texas. As one of the world’s largest publicly traded energy companies, ExxonMobil explores for, produces and refines oil and natural gas while also manufacturing petrochemicals and operating retail fuel stations globally.
Earlier this month, ExxonMobil exceeded consensus estimates in its recent quarter, driven by strong performance in the International Upstream and Downstream sectors. Management highlighted efforts to cut costs and execute Upstream volumes and strategic priorities, including the proposed Pioneer Natural Resources (NYSE:PXD) transaction and shareholder returns.
More precisely, ExxonMobil reported adjusted earnings per share for the fourth quarter that surpassed the average analyst estimate. Adjusted EPS stood at $2.48, compared to $3.40 the previous year, beating the estimate of $2.22. Moreover, ExxonMobil’s fourth-quarter capital expenditure (Capex) amounted to $7.76 billion. The company ended its fiscal 2023 year with $36 billion in profit.
BofA Securities analysts recently highlighted ExxonMobil, Occidental Petroleum (NYSE:OXY) and Chevron (NYSE:CVX) as top oil stocks to own for 2024.
“We expect oil to remain volatile, exacerbated by outsize paper market influence, informed by geopolitics and OPEC policy,” analysts said.
ConocoPhillips (COP)
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ConocoPhillips (NYSE:COP) is a leading global energy company engaged in exploration, production, refining and marketing operations. Also headquartered in Texas, it is one of the world’s largest independent exploration and production companies.
For its fourth fiscal 2023 quarter, ConocoPhillips reported earnings that surpassed expectations, particularly in its U.S. Exploration and Production segment. Management highlighted key points on the conference call, including production outlook, capital allocation plans for 2024 and strategic priorities such as inorganic growth and organic projects.
The company reported adjusted earnings per share of $2.40, exceeding the consensus estimate of $2.07. Adjusted net income stood at $2.86 billion, surpassing the estimated $2.5 billion. Furthermore, cash flow from operations totaled $5.26 billion, slightly higher than the estimated $5.21 billion.
Post earnings, investors are likely to see ConocoPhillips’ robust capital returns and return on capital expectations as attractive. All in all, ConocoPhillips remains one of the top oil stocks investors should consider for 2024 as oil prices threaten to break above $80.
Devon Energy (DVN)
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Devon Energy (NYSE:DVN) is an energy company engaged in oil and gas exploration and production. With operations primarily in the United States, Devon focuses on developing and producing crude oil, natural gas and natural gas liquids.
Reuters recently reported that Devon Energy has initiated discussions to acquire Enerplus (NYSE:ERF), a fellow industry player valued at C$4 billion ($3 billion). This potential merger aligns with the ongoing trend of consolidation within the North American oil sector, following notable acquisitions by Devon’s peers such as Exxon Mobil, Chevron and Occidental Petroleum.
In the third fiscal quarter, Devon Energy surpassed analyst estimates, reporting core earnings per share of $1.65, despite a year-on-year decrease, with production increasing by 8.3%. Natural gas and NGL prices declined, affecting revenues and leading to a 43% decrease in free cash flow.
For Q4, production is forecasted between 640 to 660 mboed (thousand barrels of oil equivalent per day), with capital expenditure expected to be $870 million to $930 million. For the full year, production is anticipated at 650 mboed, with capital expenditure in the range of $3.30 billion to $3.60 billion.
Devon’s management is committed to enhancing capital efficiency in 2024 by directing investments towards high-quality assets in Delaware and focusing on core activities. Despite shares lagging behind peers by 30% year-to-date due to less favorable well results, management remains optimistic that its oil stocks can still stage a potential rebound with improved production and cost execution.
On the date of publication, Shane Neagle did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Shane Neagle is fascinated by the ways in which technology is poised to disrupt investing. He specializes in fundamental analysis and growth investing.
