Any way you look at it, the oil rally that began back in June was a strong move for the black gold, lifting prices 40%. Like any rally, there are traders ready to take profits, and all they needed were some recent reports on sector status, especially this week’s report from the International Energy Agency on short-term demand and U.S. shale and the API reports on the strong builds in crude inventories.
The real news is that the IEA lowered its demand forecast for both this year and next. The agency lowered its 2017 forecast by 50,000 barrels per day, which may not seem like much, but is the result of a more recent slowdown. The agency says that demand in the fourth quarter will likely end up being 311,000 barrels per day lower than it previously thought.
While that currently may temper the enthusiasm, many analysts and strategist feel that world supply and demand is tight, and any macro event of size could tilt that balance in a big way. Toss in the potential for continued production cuts by OPEC, which could be announced later this month, and prices could head higher again.
It makes sense for investors to add to or initiate positions in the major integrated oil companies that offer long-term stability and consistent dividends. These four are rated Buy at Merrill Lynch and make good sense now.
This integrated giant is a safer way for investors looking to stay or get long the energy sector, and it has big Permian Basin exposure. Chevron Corp. (NYSE: CVX) is a U.S.-based integrated oil and gas company with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals.
The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas. Some on Wall Street estimate the company will have a compound annual growth rate of over 5% for the next five years.
The company reported solid earnings for the third quarter, and the analysts have noted that the Permian Basin remains a key source of capital flexibility and is a key issue behind their relative preference for Chevron over some of the other majors.
Chevron shareholders are paid an outstanding 3.74% dividend. The Merrill Lynch price target for the stock is $125, and the Wall Street consensus price objective is $124.18. The shares traded Thursday morning at $115.25 apiece.
This top Wall Street energy pick is still down almost 20% in 2017. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.
The company also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products.
For 75 years in a row, Exxon has raised its dividend on a split-adjusted basis. Thanks to the company’s vertically integrated model in the oil and gas business, its profitability doesn’t suffer through commodity price swings like a company that’s a pure play in one segment of the value chain.
Shareholders receive a nifty 3.79% dividend. The $94 Merrill Lynch price objective is much higher than the consensus price target of $83.93. The stock traded Thursday morning at $80.75 a share.