Best Oil Stock Picks for 2025 – Magic Post

There are several reasons to believe that 2025 could be a bull run for long-suffering oil sector investors. Even though the United States is pumping more oil than ever before, eNergy shares, Overall, it underperformed the market in 2023 and 2024. This poor performance indicates the cyclical nature of supply and demand around the world.

One easy way to invest in the oil sector is through exchange-traded funds (ETFs) such as Power box select SPDR NYSEARCA:XLE. This fund includes nearly two dozen companies in the areas of oil and gas, consumer fuels, and energy equipment and services. For this reason it is often seen as a proxy for this sector.

In the last five years, despite obvious supply and demand variables, XOM has achieved a better total return. But this outperformance translates to CVX over a longer period of time.

So what about 2025? Understanding the outlook for each stock may come down to their approach to capital expenditures (CapEx). ExxonMobil and Chevron are taking different approaches to capital expenditures in 2025, but what does that mean for each stock’s fortunes?

The oil industry was preparing for the next boom, with several major players making strategic acquisitions. In 2024, ExxonMobil completed its $59.5 billion acquisition of Pioneer Natural Resources.

This acquisition is already paying off, with the company noting that more than 50% of its total upstream product now comes from its premium Permian Basin, Guyana and LNG assets. That was three years ago and is the main reason the company has more than $15 billion in profits and $20 billion in cash flow compared to 2019 levels. Exxon expects these numbers to increase by an additional $20 billion and $30 billion, respectively, over the next six years.

As part of the company’s 2030 plan released in December, ExxonMobil announced plans for 2025 cash capital in the range of $27 billion to $29 billion. The company says this reflects the first full year of having Pioneer assets in its portfolio. Between 2026 and 2030, the company plans to spend between $28 billion and $33 billion annually to enhance its long-term opportunities.

There couldn’t be a greater contrast between ExxonMobil and Chevron in terms of capital spending plans. Chevron plans to reduce its capital spending by about $2 billion from 2024 levels. This would put it between $14.5 billion and $15.5 billion.

Chevron announced that approximately $13 billion of this spending will focus on upstream projects (i.e. oil and gas exploration). However, the company plans to reduce spending in the Permian Basin to between $4.5 and $5.5 billion in favor of increasing its already strong free cash flow.

To be clear, capex of $14.5 billion to $15.5 billion is not an insignificant amount. But it is worth noting that this represents about half of ExxonMobil’s spending plan. It’s also just part of Chevron’s move toward cutting capital spending. The company is selling some non-core assets and is recording restructuring costs ranging between $700 million and $900 million.

Normally, this would be a cause for concern. However, the main reason for Chevron’s decision is likely to be its merger with Chevron Hess company New York Stock Exchange: HSSE. The company is in arbitration with ExxonMobil regarding the rights to Hess assets in Guyana. However, it is still possible that the deal will be approved sometime in 2025. Once approved, it would be bullish for Chevron’s production and free cash flow outlook in the 2030s.

Analyst forecasts on MarketBeat are bullish on both stocks. The consensus price target on XOM shows a 22% upside in the next 12 months. For CVX, the price target shows a gain of 24%. Since Exxon released its 2030 plan, analysts have lowered their price targets.

The key seems to be profits. Despite the uncertainty surrounding the Hess merger, analysts still expect Chevron’s earnings to grow by 13% and just over 1.3% for ExxonMobil. Then you have to take into account the company’s profits. Once again, the advantage has to go to Chevron with its dividend being considered the gold standard at a yield of 4.59%. And with the steps the company is taking to increase its free cash flow, its 37-year plan to increase those dividends is not in jeopardy.