WTI crude oil prices reached another milestone in the recovery of the global oil market this week, trading above $75 per barrel for the first time since 2014. Oil majors are loving the impact higher oil prices have on margins, but analysts say Exxon Mobil Corporation(NYSE: XOM) stock investors may have the most to gain from rising crude prices.
Global geopolitical tensions have been elevated throughout the year, and oil prices have crept higher thanks to President Donald Trump withdrawing from the Iran nuclear deal and reinstating harsh sanctions on Iran. Bank of America analyst Doug Leggate says Iranian production could drop by more than 1 million barrels per day if Europe joins the U.S. in reducing its Iranian purchases to zero.
Between the potential long-term loss of Iranian oil and near-term production disruptions in Canada and Libya, oil prices hit their highest levels since the 2014 downturn this week, and Morgan Stanley says they are headed even higher. On Tuesday, the firm raised its price target for Brent crude in the second half of 2018 from $67.50 per barrel to $85 per barrel.
Trump, meanwhile, urged OPEC on Twitter Wednesday to reduce oil prices, saying that it is “driving prices higher as the United States defends many of their members” for little money in return.
Leggate is much less bullish on oil prices in the near term, calling for Brent prices of $71 per barrel in the third quarter and $69 per barrel in the fourth quarter. However, he says the near-term geopolitical uncertainty is masking a deeper fundamental improvement in the global oil market.
“While geopolitics is dominating the headlines, the combination of strong demand, four years of under-investment and more recently declining Venezuelan production has accelerated the rebalancing of global oil markets and the onset of the upcycle in oil prices,” Leggate says.
Leggate says the U.S. oil industry is one of the few market sectors in which he sees secular earnings and cash flow growth opportunities almost across the board. However, some oil majors have more to gain than others, and Leggate says XOM stock should have more than 30 percent upside if oil prices stay above $65 per barrel in the long term.
“We believe…
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