Despite the high volatility in the oil and gas industries, the commodities are traded in high volumes and are highly profitable if bought at the right times. Both commodities are a part of the conventional energy market which accounted for 85% of global energy needs in 2022, as mentioned in our article about the largest energy companies.
Oil Market Updates and Forecast
According to the US Energy Information Administration’s (EIA) short-term energy outlook posted in April, the Brent Crude oil spot price is estimated to be around $85 per barrel in Q2 2023 which is $2 higher than the price forecast provided a month ago. The estimates revision is owed to OPEC’s announcement of cutting over a million barrels of oil per day on April 2. The announcement was led by Saudi Arabia cutting around 500,000 barrels of oil per day and later was followed by a few other members. In total, OPEC decided to cut the production of oil by around 1.16 million barrels per day.
The oil supply was already projected to shrink in the second half of 2022 as Russia had announced a production cut in crude oil by around 500,000 barrels per day between March and December 2023 due to the G7’s price cap and sanctions on Russian fuel imports. However, in March 2023, the total Russian crude oil production cuts amounted to over 700,000 barrels per day. These production cuts could lead the average crude oil prices to go higher for the rest of 2023.
After OPEC’s announcement, on April 3, the Brent and WTI Crude futures and oil stocks experienced a significant gain. Among the oil stocks in the S&P 500, Marathon Oil Corporation (NYSE:MRO) was the biggest gainer with its stock price rising by almost 10% at the end of the day. ConocoPhillips (NYSE:COP) and Exxon Mobil Corporation (NYSE:XOM) gained around 9% and 5.9%, respectively.
Gas Market Updates and Forecast
For natural gas, the EIA has some bad news for the second half of 2023. The average natural gas spot price is expected to be around $2.65 per million British thermal units (MMBtu) in the second quarter and for the full year, the agency predicts the commodity’s price to be around $3.00 per MMBtu, declining by over 50% from the prior year. The natural gas prices declined in the first quarter of 2023 due to the low rate of withdrawals, leading to the inventories rising above the 5-year average.
In the coming months, natural gas prices will depend on several factors. The recent warmer winters have resulted in a decline in natural gas demand. Nevertheless, warmer-than-usual summers could lead to a rise in demand in the electricity production sector causing the prices to surge. However, as natural gas is often called associated gas due to its production associated with crude oil production. An increase in oil drilling due to higher prices can lead to increased production of natural gas which can put downward pressure on natural gas prices.
In these volatile market conditions, some of the best energy stocks are Exxon Mobil Corporation (NYSE:XOM), Occidental Petroleum Corporation (NYSE:OXY), and Schlumberger Limited (NYSE:SLB).
Top 10 Oil and Gas Stocks To Invest In According to Hedge Funds
We compiled this list of the top 10 oil and gas stocks purely based on their hedge fund sentiment as of the fourth quarter of 2022. The data was taken from Insider Monkey’s database of 943 elite hedge funds.
Top 10 Oil and Gas Stocks To Invest In According to Hedge Funds
Devon Energy Corporation (NYSE:DVN) is a hydrocarbon exploration company headquartered in Oklahoma. Most of the company’s reserves consist of petroleum followed by natural gas and natural gas liquids. Devon Energy Corporation (NYSE:DVN) has assets distributed across the US Midwest but most of its operations take place in the Permian Basin.
With increased inflation, companies have been experiencing an increase in breakeven WTI prices. However, for Devon Energy Corporation (NYSE:DVN), the breakeven is $40 WTI, which is quite well-regulated compared to its peers. Moreover, the company exited FY 2022 with $4.5 billion in liquidity and carries a strong balance sheet currently.
In the fourth quarter of 2022, 55 hedge funds had a stake in Devon Energy Corporation (NYSE:DVN) compared to 51 in the previous quarter. Yacktman Asset Management was the biggest hedge fund holder for the quarter with over 2.8 million shares worth $172.525 million.
According to hedge funds, Exxon Mobil Corporation (NYSE:XOM), Occidental Petroleum Corporation (NYSE:OXY), and Schlumberger Limited (NYSE:SLB) are some of the best energy to invest in along with Devon Energy Corporation (NYSE:DVN).
“Our biggest dollar gainer within this period was Devon Energy Corporation (NYSE:DVN), a position which emanated from a takeover in early 2021 of our long time holding WPX Energy. We are sitting on a material (unrealized) gain from our cost and are now receiving material dividends thanks to Devon’s thoughtful fixed/variable dividend policy. Energy is now a hot sector for investors but we have had a material exposure for a long time. We remember a bit too well $40 oil, NEGATIVELY PRICED front-month oil contract, and what it’s like to own a company with leverage and negative free cash flow during such periods. Our desire to have our biggest portfolio exposures be high return, growing, reasonably predictable and moderately levered companies lead us to reduce our Devon exposure in the past. When the recent facts and circumstances for the industry changed and appeared supportive of healthy oil prices, we decided to maintain a sizable holding and more recently added to the position. At Devon’s Q1 dividend rate, which is mostly variable in nature, the shares now yield approximately 10% and our yield on our average cost is materially higher. In addition, we maintain additional energy exposure through our long-term (and successful) holding in Hess Midstream and less directly through TerraVest and Berkshire Hathaway’s energy investments.”
Pioneer Natural Resources Company (NYSE:PXD) is a Texan hydrocarbon exploration company operating in the Permian Basin. Around April 7, Exxon Mobil Corporation (NYSE:XOM) held preliminary talks with the company’s management for a possible acquisition. As a result, between April 6-14, Pioneer Natural Resources Company (NYSE:PXD) stock has gone up by nearly 10.5%.
In the last three months, Pioneer Natural Resources Company (NYSE:PXD) has been covered by 18 analysts with 10 of them maintaining a Buy or Overweight rating on the company stock. The average price target of Wall Street analysts for the company is around $253, compared to the stock price of $230 at the time of market close on April 14.
In Q4 2022, hedge funds showed a positive sentiment toward Pioneer Natural Resources Company (NYSE:PXD) and the company was a part of 55 portfolios compared to 49 in the previous quarter.
“Better was the 8% surge from Pioneer Natural Resources Company (NYSE:PXD), an exploration and production company with operations in Texas. They reported a slight beat to production estimates with other metrics within their guidance range. The company continued with its aggressive capital return program inclusive of a sizable quarterly dividend and share repurchases. Management announced a shift to its drilling plans by focusing on acreage with higher expected returns.”
EQT Corporation (NYSE:EQT) is a Pennsylvania-based oil and gas exploration and pipeline transport company. It is also one of the most promising stocks to buy according to analysts. As of 2022, EQT Corporation (NYSE:EQT) had total proven reserves of over 25 trillion cubic feet of gas equivalent.
In the fourth quarter of 2022, EQT Corporation (NYSE:EQT)’s shares were held by 56 hedge funds with Soroban Capital Partners as the most significant stakeholder. The hedge fund owned nearly 6.5 million of the company shares, worth over $218.8 million.
EQT Corporation (NYSE:EQT) has a TTM PE ratio of 7.57x at the time of writing and its stock price has declined by around 36.23% to $33.14 from its 52-week highs. However, the company has a strong balance sheet, and natural gas prices are expected to recover slightly in the latter part of the year which can create a good entry point for EQT Corporation (NYSE:EQT) investors.
Artisan Partners made the following comment about EQT Corporation (NYSE:EQT) in its Q4 2022 investor letter:
“Finally, shares of US natural gas producer EQT Corporation (NYSE:EQT) fell on lower-than-expected production due to extreme weather in December. However, the company still produced strong free cash flow that beat expectations. EQT is one of the largest producers of natural gas, an energy source that emits significantly less carbon dioxide than other fossil fuels, such as coal or oil. We sold the position, as it had reached its target valuation.
Chevron Corporation (NYSE:CVX) is an American integrated oil and gas company headquartered in California, US. In 2022, the company posted record profits and reported earnings of $35.4 billion or $18.28 per diluted share. As of the fourth quarter of 2022, 57 hedge funds had a stake in the company worth approximately $32.25 billion.
On April 13, Scotiabank analyst Paul Cheng upgraded Chevron Corporation (NYSE:CVX) to Outperform from Sector Perform and raised his price target to $200 from $195. The analyst upgraded the company stock because Chevron Corporation (NYSE:CVX) has a higher oil beta among its super major peers.
Chevron Corporation (NYSE:CVX) is a decent dividend-paying stock with a yield of 3.50% at the time of writing. The company has increased its dividends for the last 37 years and is one of the best energy stocks to invest in according to analysts.
“Energy performed well during the fourth quarter, with the sector up about 23%. Investors returned to the sector after the Organization of the Petroleum Exporting Countries (OPEC) signaled it would reduce production. Chevron Corporation (NYSE:CVX) reported strong quarterly results while buying back stock, paying a healthy dividend, and maintaining a strong balance sheet.”
Chesapeake Energy Corporation (NASDAQ:CHK) is an Oklahoma-based oil and gas company with most of its production focused on natural gas. It is one of the best energy stocks because despite natural gas prices falling, Chesapeake Energy Corporation (NASDAQ:CHK) can withstand the decline as a significant portion of the company’s production is hedged until the end of 2023 making it one of the best energy stocks.
In the fourth quarter of 2022, Chesapeake Energy Corporation (NASDAQ:CHK) was held by 58 hedge funds and Orbis Investment Management was the most prominent shareholder with over 3.2 million shares worth $303.757 million.
On March 12, Benchmark analyst Subash Chandra maintained a Buy rating on Chesapeake Energy Corporation (NASDAQ:CHK)’s share and lowered his price target for the firm from $112 to $107. The analyst’s price revision came due to weaker oil and gas prices compared to the forecast for the first quarter of 2023.
Chesapeake Energy Corporation (NASDAQ:CHK) is one of the best energy stocks to invest in according to hedge funds along the likes of Exxon Mobil Corporation (NYSE:XOM), Occidental Petroleum Corporation (NYSE:OXY), and Schlumberger Limited (NYSE:SLB).
Carillon Tower Advisers made the following comment about Chesapeake Energy Corporation (NASDAQ:CHK) in its Q3 2022 investor letter:
“Chesapeake Energy Corporation (NASDAQ:CHK), a natural gas exploration and production company, emerged from bankruptcy with little fanfare in 2021, despite having rid itself of its debt burden and onerous pipeline contracts. The company was able to make two large acquisitions at very reasonable prices within its core producing areas, allowing for scale and cost savings. Then in 2022, natural gas prices began to rise well above expectations, increasing the value of Chesapeake’s large natural gas resources and production and contributing to its outperformance.”
