Watch These Three Energy Stocks on Oil Price Recovery
The energy sector was the worst performer of 2020, but market activities hint that energy companies are likely to outperform in 2021 on the back of improving global economic outlook.
Due to the global pandemic, the traditional energy sector took a hit, due to the global decrease of travel and international trade. International trade is a vital part of the energy sector, with the US, China, and the EU leading the way.
One of the key factors in the rapid growth of the international trade of energy products is the growth of the alternative energy sector. Alternative energy products, such as solar and wind power, are not made from fossil fuels, but instead from renewable sources. As a result, these products do not contribute to the greenhouse effect, and in some cases can actually reverse the greenhouse effect, leading to global cooling.
With the more positive outlook on alternative energy and the slowing down of the pandemic improving the global economic outlook the more optimistic situation has been reflecting from the robust gains in oil prices during the December quarter. Indeed, the momentum extended into the new year as oil prices have hit one year high last week while market fundamentals are suggesting further upside in the days ahead.
International benchmark Brent crude currently trades around at $54.84 per barrel while US oil is also hovering above the $50 level. US oil traded in negative territory during the second quarter of the pandemic year.
The rising demand for crude oil is backing the prices, driven by a stellar performance from the world’s second-largest economy even in the pandemic year.
Several economists are of opinion that the Chinese economy will see double-digit growth rates in the first quarter of 2021. China is the world’s largest oil consumer and importer. On the other hand, vaccination and stimulus packages are likely to boost the rest of the world’s economic outlook.
The largest US exploration and production giant ConocoPhillips (NYSE: COP) is likely to benefit strongly from improving oil prices. This is because COP has one of the lowest breakeven levels in the industry, thanks to its investments in high margin areas. Moreover, COP also offers dividends to investors. Its shares are down 30% in the past twelve months despite a rally of 28% in the last three months.
Exxon (NYSE: XOM) is the second-best energy stock to buy in 2021 amid its extensive business model and strong cash flows. The company’s strategy of selling non-core assets as well as moving the focus towards the high margin US plays likely to boost its cash generation potential.
Chevron (NYSE: CVX) is a good stock to consider for dividend investors because of its 5.6% dividend yield. Piper Sandler’s Ryan Todd said a meaningfully improved free cash flow outlook in light of Chevron’s latest capital spending guidance makes it an attractive pick for 2021.