The short-term rally in oil a few months ago did not last. OPEC+ had announced a supply cut that should have stabilized prices. It repeated the plan on June 9, further reducing supply starting in July 2023.
Next month, markets should realize the energy markets will react to the inventory decline. By the third and fourth quarters, a global shortage in oil will increase WTI crude prices. None of the energy exploration firms are reacting. Investors might consider accumulating energy ETFs like USO, UCO, SCO, and DRIP when the sector is out of favor.
Exxon (XOM) and Chevron (CVX) are particularly robust. With oil prices below $70 recently, Exxon is strategically positioned. By 2027, it expects a breakeven operating price of $30 per barrel. Furthermore, the demand for jet fuel is increasing.
The two firms have strong cash flow that increases when oil prices rise. They already have strong balance sheets. Exxon is the world’s fifth-largest chemical company. Sales of plastics, a key component in reducing the weight of electric vehicles, is another reason to own XOM stock.
Your Takeaway
Set a $90 per barrel target for crude prices. Build a list of energy stocks and ETFs to gain exposure in the under-appreciated sector.
