Crude oil prices have started to move higher after a period of moving lower due to the lack of upside catalysts, presenting opportunities for oil stocks to buy on dip. The recent trend has been driven by optimistic demand forecasts for summer fuel consumption and a decline in U.S. crude inventories.
The Organisation of the Petroleum Exporting Countries (OPEC) and its allies, on June 3, agreed to maintain oil output cuts of 2.2 million barrels per day until the end of September, with a gradual easing of the cuts starting in October. This initially led to a dip in oil prices during that week; however, prices rebounded from June 5.
In the U.S., the Energy Information Administration (EIA) reported a significant drop in crude oil inventories by 2.5 million barrels to 457 million barrels for the week ending June 14, surpassing analyst expectations of a 2.2 million barrel decrease. This level is 4% below the five-year average for the same time frame. Moreover, gasoline stockpiles fell by 2.3 million barrels, the first reduction since May 17.
Demand for oil is on the rise, with JP Morgan Chase (NYSE:JPM) noting a post-pandemic peak of 9.4 million barrels per day in U.S. fuel consumption for the week ending June 14. Expectations are for demand to continue climbing as the Independence Day holiday approaches, with an estimated 71 million Americans planning to travel.
Global demand also increased by 1.4 million barrels per day, with China’s fuel demand projected to rise by 1.7% in 2024.
SLB (SLB)
SLB (NYSE:SLB), formerly Schlumberger, is a leading oilfield services company offering technology and expertise in drilling, production, and reservoir management. Investing in SLB provides exposure to the energy sector’s technological advancements and operational efficiencies, making it one of the oil stocks to buy on dip.
Benchmark analysts expressed a bullish stance on Schlumberger recently, recommending investors to consider the stock undervalued. Benchmark suggests that now is the time to either start a new long position, add to an existing one, or cover a short position in Schlumberger shares.
The brokerage firm argues that Schlumberger’s stock is currently mispriced when compared to the company’s fundamental reality. They believe the current stock price represents a significant buying opportunity, noting that it is near the levels observed during major downturns such as the 2008 financial crisis and the COVID-19 pandemic.
The analysts also highlight Schlumberger’s recent acquisition of ChampionX (NASDAQ:CHX), which they believe strengthens the company’s position in the production sector. Despite Schlumberger’s solid financials, the valuation remains below historical averages, presenting what Benchmark describes as a significant “multiple reversion” opportunity.
According to their analysts, a combination of low valuation, robust financial health, and positive growth catalysts make Schlumberger stock a compelling investment opportunity.
Chevron (CVX)
Chevron (NYSE:CVX) is a major energy corporation involved in oil, gas, and renewable energy. With a robust balance sheet, Chevron offers long-term growth potential and reliable returns.
For the first calendar quarter, Chevron reported a decline in its first-quarter profit by 16% to $5.5 billion, or $2.97 per share, compared to $6.57 billion, or $3.46 per share, in the same quarter last year.
The oil giant’s adjusted earnings per share of $2.93 surpassed the anticipated $2.87 by analysts surveyed by LSEG. However, revenue fell short of expectations at $48.72 billion versus the forecasted $50.66 billion, marking a decrease from $50.79 billion a year prior.
The company cited lower sales margins at its refineries and a decline in international natural gas prices as key factors impacting its profitability. This mirrors challenges faced by Exxon in the same quarter. Despite a more than 16% increase in oil prices and a 31% rise in gasoline futures this year, these gains were offset by difficulties across the energy sector.
The company’s refining operations in the U.S. saw a significant earnings drop, over 50% to $453 million, with international refining profits falling nearly 60% to $330 million. In contrast, the U.S. oil and gas business reported a 16% earnings increase to about $2 billion, thanks to higher sales volume and a 35% surge in daily production to 1.57 million barrels, propelled by strong performance in the Permian and Denver-Julesburg basins.
Internationally, oil and gas earnings dipped 6% to $3.2 billion as production declined slightly due to maintenance in Nigeria and field declines.
Exxon Mobil (XOM)
ExxonMobil (NYSE:XOM) is a global oil and gas giant engaged in exploration, production, refining, and marketing. Its strong dividend history and integrated operations make it a stable investment in the energy industry, and one of the oil stocks to buy on dip.
More recently, Piper Sandler (NYSE:PIPR) showed continued favor for ExxonMobil, increasing the stock’s price target to $145.00 from $130.00, while maintaining an Overweight rating. The bro Chevron a less attractive option for new investments until the resolution becomes clear.. The makerage firm has consistently preferred ExxonMobil over Chevron for several years.
The current arbitration case involving the two companies has led to a belief that the uncertainty market is currently pricing in a high chance of ExxonMobil’s victory, as evidenced by Chevron trading at approximately a 3.0% discount to ExxonMobil based on the 2025 estimated FCF yield.
Piper Sandler anticipates that ExxonMobil’s near-term outperformance may be limited, but acknowledges that Chevron could narrow the gap substantially if the HES deal is finalized. Moreover, Piper Sandler sees potential upside to the Street’s estimates for ExxonMobil, suggesting a 5% increase over consensus, driven by strong production trends and refining tailwinds, despite some headwinds related to timing effects.
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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
