How is the situation in the Middle East affecting the oil market and which major oil companies could emerge as winners from a market crisis?
• Three US oil giants in good positions
• Analysts clearly see upside potential despite geopolitical tensions
• Future of oil production uncertain
Even before the terrible attack by Hamas on October 7, 2023, oil prices were at a ten-month high. The cut in production by Saudi Arabia and Russia led to a shortage of supply, which led to a strong development in the price of oil, but not to an increase in the price of oil price stocks. The comparatively weak development in the energy sector and concerns about the sustainability of the rise in oil prices led many experts to underweight energy stocks.
However, with the escalation in the Middle East conflict, a major factor of uncertainty has been added to the oil market. “The conflict has certainly increased geopolitical tensions in the Middle East, and that is something we are watching very closely at the IEA,” Toril Bosoni, of the International Energy Agency, told Benzinga. So far, however, there have been no direct effects on deliveries. “If the crisis spreads to the Middle East, that will of course be a big problem,” Bosoni continues. Many experts therefore assume that oil reserves will increase significantly in the near future.
According to an analysis by Benzinga, the three largest US oil companies in particular could benefit from the current development: ExxonMobil, Chevron and ConocoPhillips.
ExxonMobil: Focus on production
ExxonMobil recently made headlines with its billion-dollar takeover of shale oil specialist Pioneer Natural Resources. The merger of the two companies could put pressure on pipeline companies and suppliers as ExxonMobil could slow production growth in the largest oil field in the United States, Reuters reports. The merger will combine Pioneer’s 850,000 net acres in the Midland Basin with ExxonMobil’s 570,000 net acres in the Delaware and Midland Basins, promising industry leadership as Exxon now has an estimated $16 billion with the merger barrels of oil equivalent resources in the Permian Basin. In addition, the merger will also put Exxon in a good negotiating position thanks to its newfound size, for example when it comes to contracts with service providers for transport through pipelines.
As Benzinga reports, Exxon plans to continue investing in production until 2050 to compensate for the depletion of oil wells. The company expects global oil production to decline by up to seven percent.
After record profits in 2022, ExxonMobil’s profits fell dramatically in 2023. However, the current figures from the third quarter, which the oil multinational presented on October 27th, again show a 15 percent increase in profits compared to the previous quarter. The company was able to benefit from high oil prices and significantly increase production.
On TipRanks, Exxon Mobil receives a “Moderate Buy” consensus rating from a total of 19 Wall Street analysts. 13 analysts recommend the stock as a buy and six as a hold. The median price target is $128.88, which represents an upside potential of 22 percent compared to the current price of $105.64 (as of the closing price on November 1, 2023).
Chevron: Upside potential despite looming losses
In contrast to its competitor ExxonMobil, Chevron, the second largest oil producer in the USA, is directly affected by the war in the Middle East, as operations in the Israeli Tamar gas field were stopped due to the military conflict. Chevron owns around a quarter of the natural gas production there. However, experts predict that Chevron could offset losses through rising gas prices. According to Benzinga, analysts also see the company well prepared in other areas. Chevron has around four joint ventures in Venezuela and therefore an operating license, which promises to be a major advantage if the Venezuelan oil sanctions are lifted.
On TipRanks, Chevron also receives a moderate buy recommendation (ten Buy, seven Hold; as of November 1, 2023) with an upside potential of 27.9 percent and a median price target of $184.24 in the consensus rating. Analysts at Morgan Stanley believe the energy giant has even higher price potential with a price target of $201.
However, in the third quarter of 2023, Chevron fell short of expectations, and the $53 billion takeover of rival Hess is currently being discussed.
ConocoPhillips: Market positioning through acquisitions
The third largest US energy company in the league is ConocoPlillips. The company is also trying to strengthen its market position compared to the competition through acquisitions. By purchasing the remaining shares of TotalEnergies, the energy giant is now the sole owner of Surmont oil production in Canada. “Long-lasting, low-impact investments like Surmont play an important role in our deep, durable and diverse portfolio with low delivery costs,” ConocoPhillips CEO Ryan Lance explained the purchase to Benzinga.
The company is also becoming increasingly involved in the LNG market. A turn to cleaner energy sources could pay off in the future.
On TipRanks, analysts also see significant upside potential in Conoco shares: Of the 18 Wall Street analysts, 16 recommend the stock as a buy (and two as a hold), which gives the company a strong buy recommendation in the consensus rating. With a current price of $116.67 and a median price target of $143.00, this represents an upside potential of 22.57 percent (as of the closing price on November 1, 2023).
Future of energy suppliers
The situation on the oil market remains exciting. Because even the negative headlines don’t stop. In mid-September, the state of California filed a lawsuit against numerous international oil companies. As with other pending lawsuits, the issue is the accusation that the oil giants withheld the risks of their products from the public and misled consumers about the consequences of dependence on fossil fuels. In addition to the three US oil companies, Shell and BP as well as the American Petroleum Institute interest group were named.
Editorial team finanzen.net
This text is for informational purposes only and does not constitute an investment recommendation. finanzen.net GmbH excludes any claims for recourse.
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