I think oil stocks such as BP plc (LON:BP) (LSE:BP.L), Tullow Oil plc (LON:TLW) (LSE:TLW.L) and Royal Dutch Shell Plc (LON:RDSB) (LSE:RDSB.L) could have bright futures. I think their profitability could improve because of a reduction in the supply overhang which has been present in recent years. Although the OPEC production deal runs out in just a few months, in that time the supply surplus could have been narrowed to at least some degree.
In my opinion, Tullow Oil has a good strategy to power through the current oil price turbulence. I think the Tullow Oil share price could rise because of the impact of increasing production from TEN. Even if oil fails to increase significantly above $50 or $60 per barrel, I think Tullow Oil could perform relatively well due to higher production. I also think rising profitability may mean it can reduce its balance sheet leverage and become a more sustainable business. In my view, this may improve investor sentiment and lead to a higher share price.
BP is another of my favourite oil stocks. I think its share price could perform relatively well because of the strength of its asset base. The focus among investors in the last few years has been on provisions made for the 2010 oil spill. However, even though BP’s asset base has lost out in my view to investment which has been spent on compensation, to my mind it remains diversified and able to offer increasing profitability for the company in the long run.
Royal Dutch Shell’s share price could also perform well on a relative basis in my opinion. I like the cautious approach it has taken in the last few years. I think the reduction in capex and exploration expenditure makes sense, since the oil price may fail to reach $100+ anytime soon. Therefore, Shell seems to be planning for a prolonged period of difficulty, with synergies likely to be the most obvious means of attaining above-average growth. Sector consolidation could be ahead and Shell may be involved, in my view. I feel this could help to push its share price higher.