Recently, due to ongoing disruptions in the Strait of Hormuz leading to tight oil supplies, crude oil prices have climbed to nearly $120 per barrel, the highest level since 2022. Multiple oil market experts have warned that if the strait is not reopened as soon as possible, crude oil prices could eventually break through $150 per barrel, surpassing the historical record of $147 per barrel set in 2008.
JPMorgan Chase (JPM) recently warned that oil prices could spike to between $120 and $130 per barrel in the short term, and if the disruption in the Strait of Hormuz continues until mid-May, prices could exceed $150. Greg Newman, CEO of Onyx Capital Group, said earlier this year: “We are in the $150 per barrel price range, and I think predicting $200 is not absurd either.” Meanwhile, Chris Watling, Chief Market Strategist at Longview Economics, stated: “I wouldn’t be surprised if oil prices rise to $200 or even $250, because in the event of supply shortages, commodity prices tend to rise parabolically.”
The biggest beneficiaries of rising oil prices will be low-cost producers. Oil giant Chevron (CVX) has the lowest upstream breakeven level in the oil and gas industry, at approximately $30 per barrel. Even when oil prices are below $50, Chevron can fully cover its capital projects and dividend payments. The company has already completed several major growth capital projects this year and acquired Hess last year, enabling it to generate an additional $12.5 billion in free cash flow at $70 oil. If crude oil prices break through $150 per barrel, Chevron will generate even more substantial free cash flow, which can be used for share buybacks at the high end of its $10 billion to $20 billion repurchase target range, and further strengthen its balance sheet to withstand the risk of future oil price declines.
ConocoPhillips (COP) currently has a breakeven level of around $45 per barrel, with an additional approximately $10 needed to cover dividends. At $60 oil, ConocoPhillips is expected to generate nearly $20 billion in operating cash flow, far exceeding the requirements of its capital plan ($12 billion) and dividends ($4 billion). At $80 oil, its cash flow could exceed $25 billion. Higher oil prices would allow the company to increase its capital plan by $500 million and potentially expand its current quarterly share buyback program of $1 billion.
Oil Prices May Continue to Rise
Although oil prices have surged to their highest levels since 2022, there may still be room for further increases. This will benefit low-cost producers such as Chevron and ConocoPhillips, enabling them to earn greater profits this year. Therefore, these two stocks stand out as preferred options for capitalizing on high oil prices.
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