Crude Prices Surge, These Oil-Sensitive US Stocks Will Benefit Most

The energy sector of the US stock market has outperformed the S&P 500 index year-to-date, supported by a recent upward revision of the 2024 oil demand growth forecast by the International Energy Agency (IEA). The price of crude oil has been on a consistent rise, with WTI crude futures surging over 35% in the past three years, leading to substantial growth in the free cash flow of US oil stocks. As a result of improved performance, stock prices have naturally followed suit.

These US oil stocks demonstrate the highest correlation with WTI crude oil prices and have received a “buy” rating from Bank of America:

1. Targa Resources Corp (NYSE:TRGP) : This US midstream logistics company, primarily focused on onshore natural gas and natural gas liquids (NGLs), anticipates a significant inflection point in free cash flow due to reduced capital expenditure requirements. Analysts project that Targa Resources will benefit from excessive construction in the Permian Basin NGL pipeline system, while the company continues to forecast production growth in the Midland Basin for 2024. TRGP stock exhibits a high correlation of 52.3% with WTI crude oil prices, with a target price of $126, indicating a potential 12.7% increase from the closing price on April 18th.
2. Schlumberger (NYSE:SLB) : As a leading global oilfield services company, Schlumberger is highly correlated with the international and offshore oil production. Its combination of pricing power, operating leverage, and capital discipline is attractive, resulting in ample free cash flow. The stock shows a strong correlation of 47.9% with WTI crude oil prices, with a target price of $62, suggesting a 21.7% potential increase in stock price.
3. Halliburton (NYSE:HAL) : The robust North American business and strong international revenue of this US oilfield service company, coupled with its attractive valuation relative to its financial performance, position it favorably. If Halliburton continues to return over 60% of its free cash flow to shareholders in 2024 and 2025, the return will be approximately 10% of the current market value of the stock. HAL stock exhibits a high correlation of 45.4% with crude oil prices, with a target price of $43, signifying an 11.3% potential increase in stock price.
4. Baker Hughes (NASDAQ:BKR) : Despite a 5% decline in the stock price of this US oilfield service company providing equipment and technology to the energy industry year-to-date, it remains the global leader in the liquefied natural gas (LNG) liquefaction sector, with a market share exceeding 90% and multiple other growth avenues. Baker Hughes stock shows a strong correlation of 36.5% with crude oil prices, with a target price of $37.50, indicating a potential 16.5% increase in stock price.
5. Oneok Inc. (NYSE:OKE) : This US midstream gas company focuses on natural gas liquids and offers a 5% dividend yield. According to Oneok’s plan, 75% to 85% of the operating cash flow after deducting capital expenditures will be returned to shareholders through dividends and buybacks over the next four years, and the company has sufficient discretionary cash to complete the buyback plan by the end of 2025. OKE stock demonstrates a significant correlation of 26.7% with crude oil prices, with a target price of $86, implying a potential 10.4% increase in stock price.

Dividend Yielding Stocks Natural Gas Oil & Gas US Stocks