Oil prices are expected to be supported by supply constraint in the near-term amid talks of further sanctions on Russia. US bank Wells Fargo said in its midyear outlook report published in June:
“We favour the Energy sector for the uptrend in oil prices and secular supply constraints that we expect to persist for some time to come. Within this sector, we prefer integrated oil and gas companies which have strong capital bases and a positive relationship with commodity price levels.”
The bank cited integrated oil companies and midstream C-Corps as its favoured investment options as the oil stock to watch.
Wells Fargo added that it would “avoid refiners, which could suffer more acutely from excess capacity should consumer demand soften”.
Oil companies’ shares tend to move in tandem with the commodity’s price, so recognising when to buy oil stocks is an important investment strategy. Investors generally buy oil stocks when the commodity prices are low to maximise returns.
The best oil stocks are often companies with a strong track record of paying dividends to shareholders.
Global oil supply/demand overview
Despite lower oil demand caused by Covid-19 lockdowns in the world’s largest oil importer China, the US Energy Information Administration (EIA) expected global oil prices to remain supported and decline slowly because of supply constraints.
In its short-term energy outlook report published on 7 July, the EIA forecast the average Brent crude oil prices at $101 a barrel (bbl) in the second half of 2022 and falling to $94/bbl in 2023.
“Although inventories build in our forecast, they are currently lower than in 2019, which may limit some of the downward price pressures associated with rising inventories and raises the potential for continuing volatility. In addition, we expect more balanced markets in 2023. As a result of this balance, crude oil prices in our forecast decline slowly through 2023, falling from $97/b in 4Q22 to $93/b in 4Q23,” said the EIA.
Sanctions imposed on Russia after its invasion of Ukraine on 24 February have reduced global oil supply.
“There is additional uncertainty about whether Organisation of the Petroleum Exporting Countries (OPEC+) members will meet their increasing production targets and the responsiveness of new crude oil production to current high prices,” said EIA.
As of 2021, the US was the world largest oil producer by output volume, followed by Saudi Arabia and Russia. The top oil stocks are often operators in the largest oil producing countries. As a result, supply disruption from Russia and OPEC has severely constrained global supply.
Are you interested in learning more about oil companies’ stock prices and what oil stocks to invest in? In this article we explore the top oil stocks by market capitalisation, their financial analysis and potential future.
Top oil stocks by market cap in 2022
According to financial data provider CompaniesMarketCap, the top three oil companies by market capitalisation, as of 14 July, were Saudi Arabia’s state-owned producer Saudi Aramco (SAR), and US producers Exxon Mobil (XOM) and Chevron (CVX).
Saudi Aramco (SAR)
State-owned Saudi Aramco’s net income surged to $39.5bn in the first quarter this year, up 82% compared to the same period in 2021. The producer believed the increase in revenue was “primarily driven by higher crude oil prices and volumes sold, and improved downstream margins”.
According to Saudi Aramco’s Q1 financial results, the average realised crude oil prices were $97.7/bbl, up 62.3% year-over-year (YOY). Following positive Q1 results, the company declared a $18.8bn dividend to be paid to its shareholders in the second quarter.
Saudi Aramco listed its company stocks on Saudi Arabia’s stock exchange Tadawul in 2019. The share price closed at SAR36.65 ($9.76) on 13 July, up 16% from SAR31.59 the previous year.
According to Investing.com’s technical analysis over the past month, the moving averages and technical indicators exhibited ‘strong buy’ signals for Saudi Aramco’s shares.
Exxon Mobil (XOM)
American multinational oil and gas producer Exxon Mobil’s first quarter 2022 earnings doubled YOY to $5.48bn. Earnings per common share also doubled to $1.28.
The company has initiated its previously announced $10bn buyback programme, repurchasing shares totalling $2.1bn in the first quarter this year. Exxon Mobil has increased this programme and plans to repurchase up to a total of $30bn in shares through 2023.
Exxon Mobil discontinued the Sakhalin-1 operation, a major oil and gas project in eastern Russia in March, incurring a $3.4bn after-tax charge.
Exxon Mobil’s stock on the New York Exchange (NYSE) hit a 52-week high at $105.57 in early June. It has since fallen over the past month to close at $84.83 on 13 July. Despite the decline over the past month, the stock value was up 37.66% compared with a year ago.
According to Investing.com’s technical analysis over the past month, the moving averages and technical indicators displayed ‘strong buy’ signals for XOM stock.
Analyst Keith Williams at investment guide website Seeking Alpha urged caution among investors amid demand uncertainty in the short term and the decarbonisation trend in the longer term:
“Firstly, there is no clear evidence of demand beyond the levels of demand prior to the commencement of the COVID pandemic, while at least for the next six months it is possible that supply might even exceed demand. If this is the case, then the exuberance about XOM share price rise may be misplaced.
“Investment is about the future. I suggest that investors need to be cautious about a company whose senior management is having trouble acknowledging that its industry is facing decline.”
American oil and natural gas producer Chevron’s Q1 earnings nearly tripled YOY to $6.9bn, compared with $2.35bn in Q1 2021. The company’s diluted earnings per share (EPS) surged to $3.36 in Q1, well up on $0.90 for the same quarter last year.
The NYSE-listed company operates oil and gas production facilities in the US, Australia, Kazakhstan and Africa. It has grown its domestic supply in the US by 10% over the past year.
Chevron has accelerated its plan to grow its renewable fuels business and has agreed to acquire US-based biodiesel producer Renewable Energy Group. In addition, it plans to build 30 hydrogen fuelling stations in California by 2026 in a joint-venture project with Iwatani Corporation of America.
CVX stock listed on the NYSE hit a 52-week high at $182.40 in early June, and has since fallen over the past month to close at $138.92 on 12 July. Despite the plunge in the past month, the stock value was up 34% compared with a year ago.
According to Investing.com’s technical analysis over the past month, the technical indicators exhibited ‘strong buy’ signals for Chevron’s shares, while the moving averages indicated “buy”. The majority of the analysts surveyed believed this was one of the oil stocks to buy.
It is important to note that this article does not constitute financial or investment advice. If you’re considering any oil stock to buy, you should always do your own research and remember that your decision should be based on your attitude to risk, your expertise in this market, the spread of your portfolio and how comfortable you feel about losing money.
There are no guarantees. Markets are volatile. You should conduct your own analysis, taking in such things as the environment in which it trades and your risk tolerance. And never invest money that you cannot afford to lose.
Is oil a good investment?
Oil is a commodity that is one of the key energy sources in the world. However, whether oil is the right investment choice for you depends on your investing goals and portfolio composition. You should do your own research. And never invest what you cannot afford to lose.
Will oil prices go up in 2022?
No one can say for sure. The US Energy Information Administration (EIA) forecast the average Brent crude oil prices at $101 a barrel (bbl) in the second half of 2022 and falling to $94/bbl in 2023. However, analysts’ forecasts can be wrong and have been wrong. You should do your own research and never invest what you cannot afford to lose.
Is oil a good short term investment?
The oil market is expected to be volatile amid supply disruption, demand uncertainty and looming recession. Only you can decide whether oil is a good short-term investment for you. You should make the decision based on your investing goals, risk tolerance and portfolio composition. Always do your own research and never invest what you cannot afford to lose.