Betting On An Oil crisis? These Top Oil Stocks Could Generate Double-Digit Returns

Escalating tensions in the Middle East have caused oil prices to spiral again, with West Texas Intermediate crude rising by nearly 2% earlier this week. As the Israel-Hamas fight intensifies, many analysts predict regional oil production to be significantly impacted in the near term. 

While Israel is not a major global oil supplier, the regional tensions have caused the oil market to be "fraught with uncertainty," according to the International Energy Agency (IEA). 

"The conflict has certainly raised geopolitical tensions in the Middle East, and this is something that we at the IEA are watching very closely," Toril Bosoni, head of the oil markets division at the International Energy Agency, said. "For now, there has been no direct impact on supplies. We're watching this. If it spills over and spreads to the wider Middle East this is, of course, a great concern." 

As the markets grapple with rising uncertainty, analysts expect oil stocks to skyrocket in the near term. 

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Exxon 

Exxon Mobil Corp. XOM, one of the biggest oil producers in the U.S., has been gearing up to consolidate its market share even further through a multibillion-dollar merger with Pioneer Natural Resources Co. 

While Exxon anticipates a 5% to 7% decline in global oil production per year until 2050, oil demand is expected to remain robust, incentivizing the company to continue investing in production to offset depletion.

Global asset management firm AllianceBernstein Holding issued an Outperform rating for Exxon stock on Oct. 17, with a price target of $140. This indicates a 24.1% potential upside for this oil stock. Research firm Jefferies also has a Buy rating on the stock, with a price target ranging from $140 to $145, reflecting a potential upside of up to 30.6%. Firms including Morgan Stanley, UBS and Wells Fargo also have a Buy rating for Exxon.

Exxon has been benefitting from rising oil prices over the past two years, generating a record $56 billion profit in fiscal 2022 and making it the best-performing oil and gas company. Volatile oil markets amid the Russia-Ukraine war were one of the major factors driving Exxon's profit margins. 

Exxon's profit declined by 56% year over year to $7.9 billion in the second quarter of 2023. However, analysts expect the company's financials to have improved in the fiscal third quarter, as the consensus revenue estimate of $88.3 billion reflects a 10.1% rise quarter over quarter. Analysts also estimate Exxon to report earnings per share (EPS) of $2.37 for the third quarter, nearly 13% higher than the prior quarter's EPS. 

Chevron 

Chevron Corp. CVX, the second-largest oil producer in the U.S., stands to benefit from the rising oil and natural gas prices, as well, with analysts predicting a nearly 20% upside on the stock. 

Chevron has direct exposure to Israeli offshore gas platforms, which have halted operations since the Hamas attacks. Chevron owns a 25% stake in the Israeli gas field Tamar, which suspended operations as it is within rocket fire range. 

"In the wake of the situation, Israel's defense establishment ordered the temporary suspension of natural gas supplies from the Tamar field," Israel's energy ministry stated. This could result in natural gas prices skyrocketing in the near term. Nonetheless, the rising natural gas prices could offset Chevron's losses resulting from operational disruptions. 

Morgan Stanley predicts Chevron's stock price to hit $201 in the near term, reflecting an 18.9% potential upside. AllianceBernstein, on the other hand, has a price target of $184 for the oil and gas stock, indicating an 8.8% potential upside. 

Chevron is also poised to benefit from the lifting of Venezuelan oil sanctions,  as it holds a license to operate in the South American country through four joint ventures. 

ConocoPhillips

Up nearly 10% over the past three months, ConocoPhillips Co. COP has been one of the best-performing large-cap oil stocks. Investment company Susquehanna International Group has a price target of $152 for ConocoPhillips stock, indicating a 20.3% upside. The investment firm lowered the price target from $153 to $152 last week but still maintains a positive rating for the oil stock. 

ConocoPhillips is ramping up its efforts to strengthen its market share amid rising competition from industry leaders such as Exxon. Earlier this month, the company acquired the remaining 50% interest in Surmont oil sands from TotalEnergies EP Canada, making it the sole owner of the oil production site. 

"Long-life, low-sustaining capital assets like Surmont play an important role in our deep, durable and diverse low cost of supply portfolio," said Ryan Lance, chairman and CEO of ConocoPhillips.

The company also signed a commercial contract to increase its gasification capacity at an LNG terminal in the Netherlands. As the world shifts toward relatively cleaner energy sources, this agreement could allow ConocoPhillips to become a global leader in the LNG market. 

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