Oil Prices Surge Following OPEC Production Cut, Analyst Unveils 5 Top Oil Stock Picks

WTI crude oil prices jumped 6.1% to above $80 per barrel on Monday, and the United States Oil ETF (NYSE: USO) traded higher by 5.3% after OPEC announced a surprise production cut. On Monday, Bank of America analyst Doug Leggate named his five top oil and gas exploration & production stock picks for a tighter oil market.

Leggate said recent volatility in oil prices was tied partly to liquidity concerns in the banking sector. However, OPEC's decision to slash output by 1.16 million barrels per day is good news for his top oil and gas stock picks. Leggate said Saudi Arabia and the rest of OPEC seem willing to support crude prices during times in which they are not challenged for meaningful market share.

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"With OPEC signaling support for oil above $80 we see the balance of risk improving for oil E&Ps after a tough start to the year. While we expect commodity support to lift the broader sector, we see the absolute value at ~30% but bifurcated across the sector," Leggate said.

How To Play It: Leggate recommends investors focus on oil stocks with balance sheets that leverage strength at the front end of the forward curve, companies that have accelerating free cash flow growth and companies that have deep inventories. He named APA Corp (US) (NASDAQ: APA), ConocoPhillips (NYSE: COP), Exxon Mobil Corp (NYSE: XOM), Hess Corp. (NYSE: HES) and Occidental Petroleum Corporation (NYSE: OXY) as top oil stock picks in the current environment.

Benzinga's Take: Oil and gas stocks face regulatory risks and negative investor sentiment from ESG investors, but there's still plenty of money to be made in fossil fuels for the next couple of decades. In fact, many companies and investors rode high oil and gas prices to record profits in 2022 when much of the rest of the market was struggling.

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This illustration was generated using artificial intelligence via MidJourney.