Wednesday, November 30, 2022

World’s Largest Oil Producer Saudi Aramco Issued a Warning Over ‘Extremely Low’ Capacity; 3 Oil Stocks Stand to Gain

Saudi Aramco, the world’s largest oil producer, claims that the global oil market is still tight. And that is not encouraging for a world still heavily dependent on fossil fuels.

“Today, there is a spare capacity that is extremely low,” says Amin Nasser, Saudi Aramco CEO, at a conference in London. “If China opens up, [the] economy starts improving, or the aviation industry starts asking for more jet fuel, you will erode this spare capacity.”

Nasser issues an alert about a potential sudden increase in oil prices,
“When you erode that spare capacity, the world should be worried. There will be no space for any hiccup — any interruption, any unforeseen events worldwide.”

Jing Pan, an investment reporter for MoneyWise, suggests these three oil stocks bet in line with Nasser’s viewpoint. Wall Street sees potential in this trio as well.

Shell (SHEL)

Shell is a global energy powerhouse with operations in more than 70 nations, and its headquarters are in London. It generates approximately 3.2 barrels of oil equivalent per day, owns a stake in ten refineries, and, last year, sold 64.2 million tons of liquefied natural gas.

It’s also a go-to for global investors. Shell is a public company traded on the London Stock Exchange, Euronext Amsterdam, and the New York Stock Exchange. The NYSE-listed company’s shares are up 13.6% year to date.

Ryan Todd, an analyst at Piper Sandler, sees an opportunity in the oil and gas premier event. The analyst reiterated ‘overweight’ rating on Shell last month, raising his price target from $75 to $80. Given that Shell currently trades at around $50.50 per share, Todd’s new price target implies a potential 58% upside.

Chevron (CVX)

Another oil and gas supermajor benefiting from the commodity boom is Chevron. For the second quarter, the company reported earnings of $11.6 billion, more than tripling the $3.1 billion reported in the same period last year. Sales and other operating revenues totaled $65 billion in the third quarter, an increase of 81% year on year.

Chevron’s board of directors approved a 6% increase in the quarterly dividend rate to $1.42 per share in January, which resulted in an annual dividend gain of 3.6% for the company. The stock has also enjoyed a nice rally, rising 32% in 2022.

Chevron’s rating from Morgan Stanley analyst Devin McDermott is “equal weight” (not the most bullish rating), but last month he increased the price target from $187 to $193. That suggests a potential gain from the current levels of 23%.

Exxon Mobil (XOM)

Exxon Mobil is larger than Shell and Chevron, with a market cap of more than $400 billion. Exxon shares are up 55% year to date, making it the company with the best stock price performance among the three in 2022.

It is simple to understand why investors favor the stock: in this environment of rising commodity prices, the world’s largest oil producer gushes profits and cash flow. Exxon made $23.3 billion in earnings in the first half of 2022, a significant increase from the $7.4 billion in the same period in the previous year. In comparison to $13.8 billion during the same period last year, free cash flow for the first half came to $27.7 billion.

The company’s strong financials enable it to repay cash to investors. Exxon delivers quarterly dividends of 88 cents per share for a 3.6% annual yield. Wells Fargo analyst Roger Read rates Exxon as his ‘overweight,’ with a price target of $109, roughly 10% higher than the stock’s current price.