In an interview on October 3 with CNBC, Andy Critchlow, who serves as the head of news for the EMEA region at S&P Global Commodity Insights, discussed the current state of the oil market and the potential implications of various geopolitical events on oil prices.
Critchlow noted that the oil market is facing “dangerous times” due to a high level of geopolitical risk and that it’s hard for anyone in that market to gauge the direction of the market. However, he pointed out that this geopolitical uncertainty has not yet been reflected in the price of oil, despite events between Israel and Iran and numerous attacks on oil shipping in the Strait of Hormuz over the past two years. The price of oil has not surged significantly and there is no geopolitical risk premium as oil still is currently trading at less than $75 per barrel.
Critchlow also discussed the potential impact of a disruption to Iranian oil supplies, which account for around 4% of global supply. He noted that any attack on Iranian oil facilities or refineries could have a significant knock-on effect in the region. However, Critchlow noted that the market is looking ahead to next year and the potential for an excessive supply, there is already an idled supply of 5.6 million barrels per day on the sidelines.
According to Critchlow, the oil market is also challenged by supply and demand imbalances and the potential for a price war between OPEC+ members is a real concern. Critchlow commented on recent comments from the Saudi Energy Minister on October 2, who warned of the potential for $50 oil if OPEC+ members don’t stick to agreed-upon production limits. Critchlow interpreted this as a veiled threat, suggesting that Saudi Arabia may be prepared to start a price war if other members of the OPEC+ alliance do not comply with production cuts.
According to Critchlow, Russian crude was displaced from its traditional European markets and flowed into China and India, which are some of the biggest drivers for the oil market. These were the markets that Saudi Arabia effectively owned with its major Gulf partners in OPEC and that is why Saudi’s market has been squeezed in its core markets by Russia.
While the current price of oil remains relatively stable, the underlying risks and challenges suggest that a significant shift in the market could be on the horizon. With that in context let’s take a look at the 10 best energy stocks to buy according to hedge funds.
An aerial view of an energy refinery, with massive tanks and piping defining the landscape.
Our Methodology
To compile our list of the 10 best energy stocks to buy according to hedge funds, we used the Finviz and Yahoo stock screeners to find the largest energy companies. We then narrowed our choices to 10 stocks according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of their hedge fund sentiment, as of the second quarter.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Energy Stocks To Buy According to Hedge Funds
10. Shell plc (NYSE:SHEL)
Number of Hedge Fund Investors: 49
Shell plc (NYSE:SHEL) is one of the world’s largest oil and gas companies, with a global presence in both upstream and downstream operations. The company is involved in oil exploration, production, refining, and the sale of oil products, chemicals, and renewable energy. The company is involved in every aspect oil and gas business and is transitioning towards cleaner energy sources.
On October 23, Shell Energy North America (SENA), a subsidiary of Shell plc (NYSE:SHEL) announced that it has signed an agreement to acquire a 100% equity stake in RISEC Holdings, LLC, which owns a 609-megawatt (MW) two-unit combined-cycle gas turbine power plant in Rhode Island, USA. This acquisition will secure long-term supply and capacity offtake for Shell in the deregulated Independent System Operator New England (ISO New England) power market, where SENA has held a contract with RISEC under an energy conversion agreement for 100% of the plant’s energy offtake since 2019.
The acquisition is expected to provide Shell plc (NYSE:SHEL) with valuable trading opportunities, guaranteeing SENA’s position in the market and capitalizing on the plant’s value within its existing trading portfolio. The RISEC combined-cycle gas turbine power plant supplies power to the ISO New England power market, where demand is expected to increase in coming decades due to growing decarbonization efforts in sectors such as home heating and transportation. The plant has a maximum capacity of 609 MW and an average operating capacity of 594 MW and has been in operation since its completion in 2002. The acquisition is subject to regulatory approvals and is expected to close in Q1 2025. It will be absorbed within Shell plc’s (NYSE:SHEL) cash capital expenditure guidance, which remains unchanged.
9. Marathon Petroleum Corporation (NYSE:MPC)
Number of Hedge Fund Investors: 50
Marathon Petroleum (NYSE:MPC) is one of the largest petroleum refining and marketing companies in the United States, providing transportation fuels, lubricants, and petrochemicals. The company operates an extensive network of refineries and pipelines and has a significant presence in midstream logistics.
Marathon Petroleum (NYSE:MPC) holds a 64% stake in MPLX (NYSE:MPLX), providing a strong foundation for its business. In Q2, Marathon Petroleum (NYSE:MPC) received a quarterly distribution of $550 million from MPLX.
Marathon Petroleum’s (NYSE:MPC) cash flow has been strong, with $2.7 billion in cash flow from operations (CFFO) and modest capital expenditures, resulting in free cash flow (FCF) of $2.2 billion. For Q3, Marathon Petroleum (NYSE:MPC) forecasts a 90% utilization rate with operating costs projected at $5.35 per barrel, the company’s distribution costs amount to $6.5 per barrel, and the strong spreads are expected to support continued returns.
