The Three Oil And Gas Stocks Most Sensitive To Oil Price Swings

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by Tyler Durden
Monday, Apr 22, 2024 - 10:30 AM

By Alex Kimani of OilPrice

Following a strong rally amid escalating tensions in the Middle East, oil prices have pulled back sharply in the current week as demand worries outweigh geopolitical concerns. WTI crude for May delivery has declined 5.1% from the Friday close to trade at $83.15 per barrel while Brent crude June contract has retreated 4.9% to change hands at $87.50, marking the first time it has slipped under $90 in more than a week.

However, several commodity analysts believe the markets are unduly discounting the risk of a full-blown war between Iran and Israel. According to Standard Chartered, Iran’s revised position is that any future attacks on Iranian interests anywhere will draw significant retaliation, with the IRGC seizure of a cargo ship on 13 April intended as a related signal of Iran’s ability to influence regional shipping flows. StanChart has warned that the market is understating the risk of further escalation due to miscalculation, miscommunication or other human error. Meanwhile, oil prices have declined after U.S. House of Representatives Speaker Mike Johnson lined up four bills providing assistance to Ukraine, Israel and the Indo-Pacific. Bank of America estimates that an all-out war between the two countries could lead to a $30-$40 spike in the price of crude.

"The market was waiting to sell off on indications of calming of tensions in the Middle East ... progress on these bills and a three-day delay in Israel's response to Iran is helping today," John Kilduff, partner at Again Capital LLC, told CNBC.

"We're leaving our price forecasts unchanged for now and still expect ICE Brent to average US$96 over the second half of this year. The macro outlook continues to be a more important driver for prices than fundamentals at the moment," analysts at ING have said.

Bank of America has analyzed stocks in the MSCI AC World Index (ACWI) Energy, Materials and Industrials sectors for oil price sensitivity. BofA defines Oil Price Sensitivity for each stock as the regression coefficient from regressing 60 months of monthly price returns against the 3-month change in the Oil Price - Brent Crude. Here are 3 of the most sensitive oil and gas stocks to oil price changes.

APA Corp.

Market Cap: $12.1B

12-Month Returns: -17.9%

APA Corp. (NASDAQ:APA) is an independent energy company. It explores, develops and produces natural gas, crude oil and natural gas liquids. At a time when the oil sector has been rallying, APA stock has managed to decline nearly 20% over the past 12 months, and was the most shorted energy name in March.

That said, back in January, Fitch affirmed its 'BBB- credit rating for APA Corp, saying, “The $4.5 billion acquisition of Permian pure play Callon Petroleum should improve APA Corp's business profile by adding scale to the company's Permian operations. Callon will contribute 145k net acres in the Permian, split between the Delaware (82%) and Midland basins (18%), with Delaware acreage primarily in Ward, Reeves, and Winkler counties. The acquisition also adds 102kboepd of Permian production, boosting APA's pro forma size by around one-quarter to over 500kboepd, and increasing its portfolio tilt towards the U.S.’’

Further, APA holds a 50% stake in Suriname’s Block 58 alongside operator TotalEnergies (NYSE:TTE). Block 58. The block has been compared to the Guyana-Suriname basin, with analysts comparing it to Exxon Mobil”s (NYSE:XOM) Liza find in the Stabroek Block. 

Marathon Oil Corp.

Market Cap: $15.8B

12-Month Returns: 11.2%

Marathon Oil Corp. operates the United State's largest refining system, with 3 million barrels per calendar day of crude oil refining capacity across 13 refineries. Recently, equity analysts at Goldman Sachs, headed by Jenny Ma, picked MRO amongst a basket of stocks expected to benefit from high operating leverage, adding that companies with a high degree of operating leverage can generate more sales without increasing their costs. MRO has an operating leverage of 6.9.

However, JPMorgan has picked MRO stock thanks to an attractive call overwriting opportunity,

The call overwriting signal will be triggered if the sell signals are greater than the buy signal, and if the volume richness signals are greater than the cheapness signals,” they said.

Targa Resources Corp.

Market Cap: $25.0B

12-Month Returns: 45.6%

Texas-based Targa Resources Corp. (NYSE:TRGP) owns general and limited partner interests in a limited partnership that provides midstream natural gas and natural gas liquid services. The company gathers, compresses, treats, processes, and sells natural gas. On Tuesday, TRGP was one of the stocks that earned a Buy recommendation from Goldman Sachs thanks to a strong return on equity (or ROE).

“Stronger-than-expected economic growth represents the clearest upside risk to ROE. [It] would create upside to asset turnover through faster sales growth and to profit margins through operating leverage. Stronger growth has recently coincided with hotter-than-expected inflation, however,” wrote GS analyst David J. Kostin. “

GS estimates that Targa Resources will be able to grow its ROE by 17% in the current year.