Oil stocks are "increasingly hard to ignore", according to analysts at Scotiabank Global Equity Research who ranked companies by how much their balance sheet could benefit if crude prices march higher.
Shrinking U.S. stockpiles ahead of the busy summer driving season in North America saw the price of West Texas Intermediate (WTI) (CL=F) climb above US$110 per barrel on Wednesday. The latest supply data from the American Petroleum Institute added to concerns raised by Saudi Arabia's foreign minister saying "the kingdom has done what it can" to tame the oil market amid rising prices.
"In our view, there is significant value in the energy space," analyst Jason Bouvier wrote in a note to clients.
According to Scotiabank, over the last six months, the median return for oil-weighted shares is up 53 per cent, with Canadian firms rising 57 per cent, and U.S. companies climbing 46 per cent. The bank expects median debt-adjusted free cash flow for the sector to rise 29 per cent under a US$110 per barrel (WTI) scenario in 2023, or 15 per cent if WTI stays under US$70 per barrel next year.
So, which companies have the most "torque", or sensitivity to rising oil prices? Scotiabank says the following firms have "WTI sensitivities" of 18 per cent or higher:
Exxon Mobil (XOM)
Bouvier's latest report on oil-weighted energy producers follows research released last week suggesting Canadian companies in the sector have significant financial bandwidth to keep rewarding shareholders in 2023 by raising dividends and buying back stock.
According to Bouvier's prior report, Cenovus, Imperial Oil, and Ovintiv (OVV.TO)(OVV) have the greatest potential to boost their payouts among the large-cap companies. Crescent Point and Vermilion Energy Inc. (VET.TO)(VET) ranked highest by that measure among the small-to-mid cap producers.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.