Which oil stocks to buy if crude prices continue to rise
Oil stocks are “increasingly difficult to ignore”, according to analysts at Scotiabank Global Equity Research, who ranked companies based on how much their balance sheets could benefit from higher crude prices.
Dwindling US inventories ahead of the busy summer season in North America saw the price of West Texas Intermediate (WTI) (CL=F) surge above US$110 a barrel on Wednesday. The latest supply data from the American Petroleum Institute added to concerns raised by the Saudi foreign minister, saying “the kingdom has done what it can” to tame the oil market amid rising oil prices. price.
“In our view, there is significant value in the energy space,” analyst Jason Bouvier wrote in a note to clients.
According to Scotiabank, over the past six months, the median return for oil-weighted stocks is up 53%, with Canadian companies up 57% and US companies up 46%. The bank expects the sector’s median debt-adjusted free cash flow to increase 29% in a scenario of US$110 per barrel (WTI) in 2023, or 15% if WTI remains lower to US$70 a barrel next year.
So which companies have the most “torque”, or sensitivity to rising oil prices? Scotiabank lists the following companies as having a “WTI Sensitivity” of 18% or greater:
Bouvier’s latest report on oil-weighted energy producers follows research published last week suggesting that Canadian companies in the sector have significant financial bandwidth to continue rewarding shareholders in 2023 by increasing dividends and buying back shares.
According to Bouvier’s previous report, Cenovus, Imperial Oil and Ovintiv (OVV.TO) (OVV) have the greatest potential to increase their payouts among large-cap companies. Crescent Point and Vermilion Energy Inc. (VET.TO)(VET) rank first by this metric among small-to-mid cap producers.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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