It's looking like a kind of good news, bad news day for investors in oil stocks on Monday.
On the good news side of the board, two big Wall Street banks -- Truist and Piper Sandler -- just raised their price targets on three of the nation's biggest oil companies: ExxonMobil (XOM 0.52%), Chevron (CVX 0.97%), and ConocoPhillips (COP +0.19%). At the same time, however, there's bad news on oil demand coming out of Saudi Arabia -- and that seems to be overwhelming the good news, driving down oil prices and oil stock prices, too.
As of 11:15 a.m. ET, ExxonMobil stock was down 2.8% from Friday's close, ConocoPhillips shares were off 2.6%, and Chevron had shed 1.7%.
NYSE: XOM
Key Data Points
Good news first
In double-triple doses of good news, first Piper Sandler and then Truist chimed in on their high hopes for oil stocks in 2024. Piper predicted that prices will be "range bound" in 2024, reported TheFly.com, meaning they're likely to hold pretty steady this year. Meanwhile, oil stock prices look "reasonable," with ExxonMobil shares trading for less than 11 times expected 2024 earnings, Chevron shares at almost 11, and ConocoPhillips the priciest of the bunch -- but still trading at only 11.6 times forward earnings.
Truist puts the average expected price of West Texas Intermediate (WTI) crude oil at about $78 a barrel this year, with prices likely to rise as demand improves heading into 2025. And that should be good news for oil investors, as WTI closed at less than $74 Friday -- meaning oil company profits could be even better than current prices reflect.
So that sounds optimistic, right? There's just one problem.
On Monday morning, out of the blue, Saudi Arabia announced it was cutting its export price for oil by as much as $2 a barrel. This suggests that the biggest player in OPEC sees weakening demand for oil, and has decided it must cut prices to spur demand.
Oil prices are reacting sharply, with WTI crude in particular falling more than 4% Monday to just under $71 a barrel. Brent crude prices fell 3.5% to about $76 a barrel. In other words, at the same time as Truist and Piper Sandler were telling investors that oil prices will rise this year -- and that oil company profits will rise with them -- investors are seeing oil prices actually fall in real time.
Should you sell oil stocks in 2024?
So is it time to panic?
Actually, no. While investors may be selling Monday, those Wall Street prognosticators have not actually been proven wrong in their predictions just yet. Truist said that prices will average $78 in 2024, meaning prices may oscillate higher and lower than that over the course of the year. Piper Sandler similarly was looking ahead to a range of crude prices this year -- there will inevitably be ups and downs along the way.
Therefore, we could still see average prices for oil in 2024 that are similar to what we saw in 2023 -- and during the first three quarters of last year, ExxonMobil, ConocoPhillips, and Chevron earned a combined $55.5 billion in profits, according to data from S&P Global Market Intelligence. Similar profits this year could see those three energy giants earning about $74 billion, resulting in about an 11.1 average price-to-earnings ratio across them at their current stock prices.
I don't know about you, but that still sounds pretty cheap to me.
