In an interview with CNBC on November 26, Daan Struyven, Co-Head of Global Commodities Research at Goldman Sachs, discussed the current state of the oil market and the potential impact of a ceasefire in the Middle East on oil prices.
Struyven noted that while the geopolitical risk premium in oil prices was fairly modest, he thinks that the market is focused on risks with a clear path to lower production. The market has not yet fully priced into this possibility, and the current price of oil is too low compared to inventory fundamentals.
Struyven pointed out that global oil inventories have edged down this year, and the market has been in a deficit of around 0.5% of global markets. He thinks that many oil investors are pricing in a large surplus for 2025, which Struyven believes is not done yet and he sees significant upside risk to prices in the short term, potentially coming from lower production from Iran.
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Struyven noted that while the Trump administration’s goals are achievable, they are largely driven by technological advancements and LNG export plans that are already underway despite any policy change. He also agreed that the big oil companies are not eager to spend more money on production on current oil prices.
Struyven also highlighted OPEC’s influence on the market, emphasizing Saudi Arabia’s preference for higher oil prices. He suggested that OPEC would likely defend a price floor of around $70 per barrel but would not hesitate to increase supply if prices climb above $80. This aligns with his expectation that oil prices will remain within a range of $70 to $85 per barrel.
Finally, Struyven attributed the changes in the oil market to the success of US shale production, which has accounted for 100% of global oil production growth over the past decade. This has put downward pressure on long-term prices, making it less likely for oil prices to spike above $100 as they did in the past.
The oil market is influenced by a range of factors, including geopolitical risks, production levels, and OPEC’s strategies. The potential for a ceasefire in the Middle East, for example, could impact prices, but the geopolitical risk premium is still relatively modest. Despite this, oil prices remain lower than expected based on inventory fundamentals. While these dynamics shape the near-term outlook, long-term oil price increases above $100 are less likely due to the impact of US shale production, which has accounted for all global oil production growth over the past decade. With that in context let’s take a look at the 10 oil stocks with biggest upside potential according to analysts.
A row of massive oil rigs in a desert landscape, against a setting sun.
Our Methodology
For this article, we sifted through Energy ETFs and online rankings to form an initial list of 35 Oil stocks. We then sourced the analysts’ average price targets and picked the 10 stocks that had the highest upside potential, as of November 29. We also included their hedge fund sentiment, which was taken from Insider Monkey’s Hedge Fund database of 900 elite hedge funds as of Q3 of 2024. The list is sorted in ascending order of analysts’ average upside potential.
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 Oil Stocks with Biggest Upside Potential According to Analysts
10. Diamondback Energy, Inc. (NASDAQ:FANG)
Upside Potential: 21.89%
Number of Hedge Fund Holders: 49
Diamondback Energy, Inc. (NASDAQ:FANG), an independent oil and gas company headquartered in Texas, focuses on the exploration and production of crude oil from the Permian Basin. The company primarily supplies domestic refineries and energy distributors. On September 10, Diamondback Energy, Inc. (NASDAQ:FANG) completed its merger with Endeavor Energy Resources, establishing itself as a leading operator in the Permian Basin. Initially announced in February, the deal is valued at $26 billion.
Following the merger, Diamondback Energy, Inc.’s (NASDAQ:FANG) existing shareholders hold approximately 60.5% of the combined company, while Endeavor’s equity holders own the remaining 39.5% stake. Endeavor, a significant player in the Midland area of the Permian shale basin, operates across multiple basins, including the Core 6 counties of the Midland Basin.
The merged entity is projected to produce an impressive 816,000 barrels of oil and gas daily, with a combined footprint spanning about 838,000 net acres. Travis Stice, Chairman and CEO of Diamondback, described the merger as a “transformative” deal that positions the company for continued growth and success.
In the third quarter of 2024, Diamondback Energy, Inc. (NASDAQ:FANG) reported a 13% revenue increase, driven by higher production volumes following the Endeavor merger and a rise in sales of purchased oil. The company also saw a 3% year-over-year growth in sales of natural gas, oil, and natural gas liquids.
9. ConocoPhillips (NYSE:COP)
Upside Potential: 22.20%
Number of Hedge Fund Holders: 66
ConocoPhillips (NYSE:COP) is a leading independent exploration and production company with extensive crude oil operations worldwide. The company specializes in unconventional oil production from U.S. shale formations and traditional reservoirs in global markets. ConocoPhillips (NYSE:COP) supplies crude oil to refineries, industrial customers, and international markets.
On November 22, ConocoPhillips (NYSE:COP) finalized its acquisition of Marathon Oil Corporation (NYSE:MRO), enhancing its potential for long-term growth. The company anticipates achieving synergies exceeding $1 billion on a run-rate basis within the next 12 months.
On October 31, ConocoPhillips (NYSE:COP) announced its Q3 financial results. During the quarter, the company generated $5.8 billion in cash from operating activities, including $4.7 billion in cash from operations. It also raised its regular dividend by 34% to $0.78 per share and expanded its share repurchase authorization to $20 billion.
ConocoPhillips (NYSE:COP) has presented a 10-year strategic plan emphasizing disciplined investment, steady growth, improved returns, and substantial cash distributions to shareholders. This approach positions ConocoPhillips (NYSE:COP) uniquely among its peers.
