Tropical storm Francine brings bulls to Oil stocks

Key points

• Tropical Storm Francine has slowed oil production, which led to a surge in oil prices.

• Oil stocks and ETFs have seen their stock prices jump with rising oil prices.

• Wall Street analysts are bullish on oil stocks, which are cheap right now.

The storm churning through the Gulf of Mexico has led to an increase in the price of oil.

With Tropical Storm Francine churning through the Gulf of Mexico, the price of a barrel of oil has risen almost 3% to around $68.50, providing a lift for oil stocks and exchange-traded funds.

Oil prices had been declining recently, falling to $65 per barrel earlier this week and reaching their lowest level since 2021. The decline was due to several factors, including a pullback on demand from China and an expansion of production in the U.S., among other factors.

But Francine, which had been downgraded to a tropical storm after making landfall in Louisiana, created a spike in oil prices due to uncertainty around supply. The storm caused a production shut-in equivalent to about 39% of the output from the Gulf of Mexico.

Analysts at UBS, according to Reuters, said the storm has disrupted about 1.5 million barrels of U.S. oil production. That will reduce September production from the the Gulf of Mexico by approximately 50,000 barrels per day, UBS analysts said, reported Reuters.

That supply constraint, in turn, could lead to oil prices moving higher over the next few months. UBS analysts said oil prices could move back up over $80 per barrel, per Reuters.

Oil stocks moving higher

The spike in oil prices sparked a rally among oil stocks and ETFs Thursday. One of the biggest movers among ETFs is the SPDR S&P Oil & Gas Equipment Services ETF (NYSEARCA:XES), which climbed 1.4% on Thursday. Another top gainer is the Invesco Oil & Gas Services ETF (NYSEARCA:PXJ), which rose 1.7% on the day. Another winner is the ProShares Ultra Oil and Gas ETF (NYSEARCA:DIG), which jumped 2.2% Thursday.

Among the largest oil stocks, Exxon Mobil (NYSE:XOM) rose 1.4% Thursday to $111 per share. Exxon Mobil stock is up about 11% year-to-date.

Sunoco (NYSE:SUN) gained 2.4% on the day, rising to more than $53 per share. It was a much-needed lift for a stock that is down 11% this year.

Other top oil stocks Thursday include TotalEnergies (NYSE:TTE), which rose 1.5% to $67 per share, and BP (NYSE:BP), which surged 1.2% to nearly $32 per share. TTE stock is flat YTD while BP has gone up 10.5% YTD.

Also, Sable Offshore (NYSE:SOC) climbed 2.1% on Thursday, trading at $21 per share. Sable stock is up 85% YTD.

Analysts are bullish

Wall Street analysts are bullish on oil stocks. Sable Offshore recently got a price target upgrade from Jefferies and it has a median price target of $26 per share. That represents a 21% increase over the current price.

Exxon Mobil has a median price target of $134, which is 17% above the current price. The stock is relatively cheap with a P/E ratio of 13.

Sunoco is also available at a discount right now with a P/E ratio of 6. Analysts have set a median price target of $62 per share for Sunoco, which is 16% above the current price.

BP stock is also cheap with a lot of upside. The stock has a P/E ratio of just 6 and a median price target of $42 per share, which represents 33% growth.

Finally, TotalEnergies stock has a median price target of $78 per share, which is 15% higher than the current price. It also has a dirt cheap P/E ratio of 7.

Energy and oil stocks in general are fairly volatile, because of shifts in the price of the commodity based on macroeconomics, geopolitics, and other outside factors. But they are cheap right now and have some tailwinds that might warrant consideration from investors.