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Stock Analysis & Ideas

High Fuel Prices Have a Silver Lining. These 3 Oil Stocks are Rising in 2022.

Story Highlights

Exxon Mobil, Chevron, and Shell are seeing increasing profitability backed by high energy prices and record oil-refining margins.

The combination of rising oil prices and recovering global demand has created the most favorable business environment for oil companies. Consequently, the surge in the profitability of three major oil companies — Exxon Mobil (NYSE: XOM), Chevron (NYSE: CVX), and Shell plc (NYSE: SHEL) — in the second quarter spiked investors’ interest. These companies together accounted for a whopping $46 billion in profits in the reported quarter.

Among the companies mentioned above, Exxon has risen the most so far this year, 42.2%. While Chevron surged 31.3% year-to-date, Shell is up 18.3%.

Now, let’s study the second-quarter results of these major oil companies to understand how they are gaining from the tailwinds of high energy prices and strong demand.

Exxon Mobil (NYSE: XOM)

Exxon Mobil recently posted the highest profit ever recorded in any given quarter. The company reported earnings of $4.14 per share in the second quarter, quadrupling from $1.14 per share a year ago.

The company’s management attributed the stellar performance to increased production, high energy prices, higher realizations, record fuel-making margins, and cost control initiatives. According to the company, natural gas realizations and refining margins came in well above the 10-year range.

In the second quarter, Exxon increased its oil and gas production by about 4% year-over-year. The company aims at widening its refining capacity by nearly 250,000 barrels per day in the first quarter of 2023.

Looking at the strong fundamentals of the company, even Wall Street is optimistic about XOM. On TipRanks, Exxon Mobil carries a Strong Buy rating, which is based on 11 Buys and three Holds. Financial bloggers, too, are Bullish on XOM.

Chevron (NYSE: CVX)

Recently, integrated energy company Chevron posted better-than-expected second-quarter results on the back of high oil prices and resilient demand. The company’s adjusted earnings rose 240% year-over-year to $5.82 per share. Its revenues also jumped 83% from the prior-year period to $68.8 billion.

Chevron’s average sales price per barrel of crude oil and natural gas liquids was $89 in the June quarter, up from $54 in the year-ago period. The average sales price of natural gas jumped to $6.22 per thousand cubic feet in the second quarter of 2022 versus $2.16 a year ago.

In these favorable times, this cash-rich oil company has reduced its debt ratio to under 15%. Furthermore, Chevron has increased the top-end of its share repurchase guidance from $10 billion to $15 billion. The company is also improving its supply capacity by expanding both its traditional and new energy business lines.

However, Wall Street has mixed feelings about the stock. On TipRanks, Chevron carries a Moderate Buy consensus rating, which is based on 10 Buys, five Holds, and one Sell. Financial bloggers are 85% Bullish on CVX.

Shell (NYSE: SHEL)

Multinational oil giant Shell posted earnings of $3.06 per ADR in the second quarter of 2022, up 115.5% year-over-year. Revenues totaled $100.06 billion, up 65.3% from the year-ago quarter, on the back of healthy segmental businesses and record high fuel-making margins.

The company has been generously rewarding its shareholders as well. In the quarter, it paid cash dividends of about $1.9 billion (dividend yield is 3.59%) and bought back shares worth $5.5 billion. Shell expects to complete its $6 billion share buyback program in the third quarter. The company also reduced its net debt levels by $2.1 billion in the June quarter.

Wall Street looks impressed with Shell’s strong fundamentals. On TipRanks, Shell carries a Strong Buy consensus rating, which is based on three Buys and one Hold. On similar lines, financial bloggers are 97% Bullish on SHEL.

Concluding Thoughts

The rise in demand due to the easing of COVID-19 restrictions, soft supply levels, ongoing Russia-Ukraine conflict, and slow rate of new investments to enhance oil-refining capacity should help sustain the strong momentum in this space.

Apart from some moderation in fuel-making margins, energy prices are expected to remain strong in the near term.  The U.S. Energy Information Administration (EIA) projects a 44.8% year-over-year rise in average WTI crude oil price this year. The average natural gas price is also expected to increase by 12.5% in 2022.

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