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Global energy prices are rising, and several oil stocks appear poised for further gains.
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Ongoing uncertainty about the reopening of the Strait of Hormuz is driving up oil prices. This is benefiting energy companies in the Western Hemisphere as Asian markets increasingly look for alternatives.
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In the last month, oil prices have surged over 50%, with WTI crude fluctuating in the $90 to $100 range. While major players like ExxonMobil, Occidental Petroleum, and Marathon Petroleum have risen less than 10%, the market is hopeful for a quick reopening of the Strait. However, any reopening might just be temporary, potentially taking weeks for prices to adjust.
Before the current conflicts, JPMorgan anticipated Brent crude would average about $60 a barrel through 2026. OPEC+ aimed to boost production by 206,000 barrels per day in April; yet, the market remains skeptical and expects prices will drop quickly post-conflict.
But, there’s some hesitation in market predictions about a swift economic reopening. Attacks across the Channel have slightly disrupted traffic, and Iran dismissed the ceasefire. President Trump’s recent call for a five-day delay may only complicate matters further.
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Even with potential improvements in the situation, oil stocks are set to rise as more investments aim to diversify energy production away from the Gulf.
ExxonMobil primarily sources oil from the U.S. Permian Basin, Guyana, and the Gulf of America/Mexico. The company has a presence in various Western Hemisphere countries, which helps mitigate risks tied to Gulf fluctuations.
Still, being insulated doesn’t guarantee benefits from rising prices. A lot of oil that comes from the Strait of Hormuz heads to Asia, and now those markets are reconsidering their energy sources. This situation leads to rising prices overall, which is a clear advantage for ExxonMobil.
CEO Darren Woods emphasized that Exxon has transformed into a “higher profit, lower cost, technology-driven company,” and it’s tough to argue against the numbers supporting that claim. Today, profit margins appear even more favorable.
ExxonMobil is evaluating potential investments in Venezuela, especially with its proximity to Guyana offering significant growth opportunities.
If the Strait remains closed past May and demand shifts westward, I think XOM stock could continue its upward trend.
Occidental Petroleum is a favorite of Warren Buffett. He has consistently increased his OXY holdings, which are currently performing well. With the Permian Basin as its core, OXY has risen almost 16% just in the past month, making it a top performer in the oil sector right now.
Occidental has exited the chemical sector, focusing purely on production, which sets it apart from companies like ExxonMobil. However, that could be a risky move; in a post-ceasefire environment where prices might fall, OXY may suffer.
Still, OXY was performing well before February, showing it can be a solid cash generator. The company’s debt has declined significantly, from over $40 billion in 2019 to $23.35 billion now. Fast repayment of debt and a clear focus on oil could push its financial performance to new heights.
The stock trades at just 0.71 times its estimated free cash flow, which is lower than the median figure in the oil sector. Given its strong fundamentals, it would not be surprising for OXY to command a higher valuation. The free cash flow margin is at 19%, while the EBITDA margin stands at 54%, both outperforming a majority of its competitors.
On the other hand, Marathon Petroleum is centered around refining rather than extraction. The company spans the entire downstream energy spectrum, handling oil from the refinery to gas stations.
Higher oil prices have had a mixed effect on Americans, but for Marathon, it’s a boon, expanding profit margins significantly.
MPC stock has already increased 56% in the past year and has surged nearly 500% since February 2020. This growth is driven not just by optimism in oil refining but also by an aggressive share buyback initiative. Over five years, the company has cut its outstanding shares from 651 million to 294 million—a meaningful reduction that surpasses most of the industry. They have repurchased an average of 13.4% of their shares annually over the past three years, yielding a dividend of 1.66%.
We believe MPC stock will likely keep climbing as profit margins expand with rising oil prices, which should enable more share buybacks in the future.
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