Crude Oil

Outlook for Oil Stocks for the Remainder of 2023

The oil and gas industry has been experiencing a roller-coaster ride in the past year, as the global
energy crisis, the COVID-19 pandemic, the OPEC+ alliance, and the climate change agenda have
created unprecedented challenges and opportunities for the sector.

Oil prices have surged to multi-year highs, reaching above $80 per barrel in October 2023, while
natural gas prices have soared to record levels in some regions, driven by supply disruptions, strong
demand recovery, and low inventories. These favorable market conditions have boosted the
profitability and cash flow of oil and gas companies, especially those with low-cost production and
diversified portfolios.

However, the outlook for oil stocks for the remainder of 2023 is not without uncertainties and risks,
as the industry faces several headwinds that could dampen its performance and prospects. In this

blog post, we will discuss some of the key trends and factors that will shape the oil stock market in
the second half of 2023, and highlight some of the best oil stocks to buy or watch.

Demand Growth and Supply Constraints

One of the main drivers of oil prices in 2023 has been the imbalance between demand and supply, as
the global economy recovers from the pandemic-induced recession and energy consumption
rebounds. According to the International Energy Agency (IEA), world oil demand will climb by 2 mb/d
in 2023 to a record 101.9 mb/d. 1  Reflecting the widening disparity between regions, China, will
account for 70% of growth. 2

However, oil supply has not kept pace with demand, as producers have been cautious about
increasing output amid uncertainty over future demand and prices.
The OPEC+ group of major oil exporters has been gradually easing its production cuts since May
2023, but it has also signaled its willingness to adjust its policy according to market conditions.
Moreover, non-OPEC+ supply has been hampered by various factors, such as underinvestment,
operational issues, geopolitical tensions, and environmental regulations. As a result, global spare
capacity has fallen to its lowest level since 2016, leaving little room for error in case of unexpected
outages or demand surges.

The demand-supply gap is expected to widen in the second half of 2023, as OPEC+ decided to reduce
the daily oil production by 2 mb/d from November to December 2023. 3  The IEA warns that the
market will remain tight and vulnerable to price spikes unless producers raise their output more
significantly.

Transition vs. Transformation

Another major trend that is expected to influence oil stocks in the remainder of 2023 is the
accelerating energy transition towards a low-carbon future.
The oil & gas industry is facing increasing pressure from governments, investors, consumers, and
society at large to reduce its greenhouse gas emissions and align with the goals of the Paris
Agreement on climate change.

The COP26 summit in Glasgow in November 2023 is expected to be a critical moment for global
climate action, as countries are expected to submit more ambitious nationally determined
contributions (NDCs) and long-term strategies to achieve net-zero emissions by 2050. Moreover,
several countries have announced or implemented policies and regulations to support the
development and deployment of clean energy technologies, such as renewable energy sources,
electric vehicles (EVs), hydrogen, carbon capture utilization and storage (CCUS), and biofuels.

The oil and gas industry has responded to these challenges by announcing various initiatives and
commitments to reduce its carbon footprint and diversify its portfolio.  According to a report by
Deloitte 2 , more than 80% of O&G executives surveyed say they have increased their investments in
low-carbon technologies in 2023 compared to 2022. 4 Some of the leading O&G companies have also
set ambitious targets to achieve net-zero emissions by 2050 or sooner, while others have announced
plans to spin off or sell their fossil fuel assets.

The IEA’s Net Zero Emissions (NZE) scenario, which outlines a pathway to achieve net-zero emissions
by 2050 globally, implies a radical transformation of the energy system that would require
unprecedented levels of collaboration, innovation, and investment. According to this scenario, oil
demand would decline by 75% by 2050, while natural gas demand would decline by 55% by 2050.

Moreover, the IEA estimates that the O&G industry would need to invest $750 billion per year in
clean energy technologies by 2030, and $1.3 trillion per year by 2050, to align with the NZE scenario.

Best Oil Stocks for the Remainder of 2023

Given the complex and dynamic environment that the oil and gas industry operates in, it is not easy
to identify the best oil stocks for the remainder of 2023. However, based on some criteria, such as
financial performance, growth potential, dividend yield, valuation, and ESG rating, we have selected
five oil stocks that we think are worth considering or watching.

Chevron (CVX): Chevron is one of the largest integrated O&G companies in the world, with
operations in more than 120 countries. Chevron has a strong balance sheet, a low breakeven price of
$40 per barrel, a diversified portfolio of upstream and downstream assets, and a robust pipeline of
growth projects. Chevron also pays a generous dividend of 5.2%, which it has increased for 34
consecutive years.

ExxonMobil (XOM): ExxonMobil is another leading integrated O&G company with a global presence
and a long history of innovation and excellence. ExxonMobil has been improving its operational
efficiency, reducing its costs and debt, and increasing its cash flow and profitability. ExxonMobil also
offers a high dividend yield of 5.8%, which it has maintained despite the challenging market
conditions.

ConocoPhillips (COP): ConocoPhillips is one of the largest independent exploration and production
(E&P) companies in the world, with operations in 15 countries. ConocoPhillips has a low-cost
structure, a strong balance sheet, a flexible capital program, and a diverse portfolio of high-quality
assets. ConocoPhillips also rewards its shareholders with a solid dividend of 2.9% and a share
repurchase program.

Enbridge (ENB): Enbridge is one of the largest energy infrastructure companies in North America,
with a network of pipelines that transport oil, natural gas liquids (NGLs), natural gas, and renewable
natural gas (RNG). Enbridge also operates power generation assets that use renewable sources such
as wind, solar, and hydro. Moreover, Enbridge has been investing in low-carbon solutions such as
hydrogen, CCUS, and RNG.

Conclusion

The energy supply-demand factors and transition to cleaner energy pose both threats and
opportunities for oil stocks for the remainder of 2023 and beyond, depending on their strategy,
capabilities, and resilience.

On the one hand, some oil stocks may face declining revenues, margins, and valuations as their core
business becomes less profitable and attractive in a low-carbon world. On the other hand, several oil
stocks may benefit from their competitive advantages, such as low-cost production, operational
excellence, technological innovation, and financial strength, to capture new growth opportunities in
emerging markets and segments.

Moreover, some oil stocks may leverage their existing assets, skills, and relationships to play a key
role in enabling the energy transition, such as by providing low-carbon fuels, hydrogen, CCUS, and
power generation.