Key Takeaways
Goldman Sachs has identified eight oil stocks excelling in production and refining, presenting investment opportunities amid heightened Middle East tensions and supply chain disruptions that have significantly boosted crude oil prices.
Over the past month, Brent crude oil prices have surged by 56.3%, reaching $106.91 per barrel. Ongoing attacks on shipping routes in the Red Sea have prompted the US and European nations to release strategic petroleum reserves to manage global crude oil prices.
Goldman Sachs analyst Neil Mehta has assigned a "Buy" rating to three of the firm's top refining picks: Valero Energy, HF Sinclair, and Marathon Petroleum.
In the production sector, Goldman Sachs sees attractive risk-reward opportunities with Brent crude oil prices between $70 and $75 per barrel. The investment bank has raised its price targets for major US energy companies and the Canadian energy sector.
Chevron is also a prominent name on Goldman Sachs' list, with the company expected to undertake at least $12 billion in share buybacks by 2026. Continued expansion is anticipated, driven by new project launches in Guyana and the Gulf of Mexico.
Refining Sector Benefits from Margin Expansion and Demand Growth
In terms of refining operations, Goldman Sachs favors companies with improving margins, particularly on the West Coast, where widening crack spreads are attributed to tight product inventories and strong gasoline consumption.
Valero Energy tops Goldman Sachs' refining selections. Analysts highlight its facilities in the Gulf of Mexico, capable of processing at least 240,000 barrels per day of Venezuelan crude. Valero reported earnings per share of $3.82 and revenue of $30.37 billion in the fourth quarter. The company plans to return 40-50% of its adjusted cash flow through dividends and buybacks, with Goldman Sachs projecting approximately $4.9 billion to be returned to shareholders by 2026.
Marathon Petroleum rounds out the top three refining giants. Goldman Sachs forecasts $4.6 billion in shareholder returns by 2026. Marathon surpassed analyst expectations with fourth-quarter earnings per share of $4.07. The company aims for a 12.5% dividend increase within two years.
Canadian Energy Producers in Focus
Among Canadian energy companies, Cenovus Energy offers the strongest total return opportunity according to Goldman Sachs' analysis, with its West White Rose project expected to commence production by the end of the second quarter of 2026.
Suncor Energy has delivered approximately 65% returns over the past 12 months. Goldman Sachs maintains an optimistic outlook, emphasizing its integrated operating structure and the implementation of proprietary transportation trucks to reduce operational costs.
Canadian Natural Resources boasts a dividend yield of around 4%. Goldman Sachs anticipates an average daily production of approximately 1.632 million barrels of oil equivalent.