Oil prices took a plunge earlier this year. WTI, the primary U.S. oil price benchmark, fell from its peak at above $80 a barrel to a low point of around $60 a barrel due to concerns that President Donald Trump's tariff plan would slow the economy and sap oil demand. However, crude oil has since spiked back into the mid-$70s due to tariff pauses, trade deals, and concerns about supply disruptions due to resurgent conflicts in the Middle East and between Russia and Ukraine.
Rising oil prices will enable oil companies to produce more cash, making the sector look like a more compelling investment opportunity these days. ConocoPhillips (COP -2.53%), Devon Energy (DVN -1.46%), and Chevron (CVX -2.11%) currently stand out to a few Fool.com contributing analysts as top oil stocks to buy amid the rise in crude prices.
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Devon Energy benefits as oil prices rise
Reuben Gregg Brewer (Devon Energy): Energy prices are volatile, which is a simple fact of life in the energy sector. Companies go about dealing with this in different ways. For example, companies like integrated energy giant Chevron work to mitigate the risk by having diversified business models and strong balance sheets. Companies like Devon Energy, a pure-play energy producer, embrace the risk.
To be fair, Devon Energy isn't speculating wildly in the hope of hitting the jackpot. It just focuses on controlling what it can by operating a strong energy production business. And it has done so fairly well, noting that it has an attractive break-even price, growing production, and an investment-grade-rated balance sheet.
Management simply accepts that the revenue and earnings it generates will fluctuate over time, rising and falling alongside commodity prices. But the company's business model will likely be very attractive to investors looking to benefit from rising oil prices.
Basically, Devon Energy is a long-term survivor in the volatile energy sector. And its financial performance will benefit directly from oil price rallies. Which, in turn, means its stock price will tend to rally alongside oil prices. Devon Energy is a higher-risk energy investment, but if you are looking for a way to cash in on higher crude prices, well, it could be a very good option for you.
This well-oiled machine can thrive in all market environments
Matt DiLallo (ConocoPhillips): U.S. oil and gas giant ConocoPhillips has built one of the industry's deepest and most durable diversified portfolios. The company currently has decades of inventory, with a cost of supply that's less than $40 per barrel. That low cost of supply cushions its downside during periods of lower prices while enhancing its upside potential when crude oil prices spike.
ConocoPhillips capitalized on the dip in oil prices earlier this year by finding additional opportunities to enhance its efficiency and reduce costs. It cut $500 million in capital spending and $200 million in operating costs without impacting its production guidance. Because of that, the company is in an even stronger position to cash in on the more recent uptick in crude prices.
On top of its base business's improved cash flow, ConocoPhillips is about to reach a major inflection point, delivering robust multi-year free cash flow growth. Its longer-cycle investments in liquefied natural gas (LNG) and Alaska have it on track to produce an incremental $6 billion in annual free cash flow by 2029, assuming $70 oil (crude is currently closer to $75). That's a sector-leading free-cash-flow growth rate.
With an already strong balance sheet, ConocoPhillips expects to return most of this windfall to shareholders. The oil giant plans to deliver dividend growth within the top 25% of companies in the S&P 500. It also plans to repurchase at least $20 billion worth of its stock over the next three years. The company's combination of low costs, visible growth, and enhanced shareholder returns makes it a top oil stock to buy in any environment.
Well-positioned to grow as oil prices rise
Neha Chamaria (Chevron): Since Chevron is primarily an oil and gas exploration and production company, the prices of crude oil and natural gas are the most significant factor affecting its earnings and cash flows. Chevron estimates that every $10 change in Brent crude price will affect its production by nearly 10,000 barrels of oil equivalent per day. Every $1 change in Brent crude price, meanwhile, can affect its after-tax earnings by nearly $450 million.
Needless to say, a rising oil-price environment is hugely favorable for Chevron. Chevron stock moves largely in tandem with oil prices, and it has fallen alongside oil prices in recent weeks and is still trading down almost 10% in three months. Now's a great time to buy the stock, especially since Chevron is already on solid footing, and higher oil prices should drive its cash flows even higher.
Chevron expects to generate $10 billion in incremental free cash flow (FCF) by 2026 at a Brent crude price of $70 per barrel, driven by its growth projects and cost savings. If oil averages $60 per barrel, Chevron still expects to generate extra FCF worth $9 billion through 2026.
While higher FCF should be reflected in Chevron's share price, it could also mean bigger dividends for shareholders. Chevron prioritizes dividend growth and has increased its dividend for 38 consecutive years. Long story short, higher oil prices, rising cash flows, and growing dividends should drive Chevron shares higher and generate strong returns for investors.
