We recently published a list of 7 Best Oil Stocks under $20. In this article, we are going to take a look at where Petróleo Brasileiro S.A. – Petrobras (NYSE:PBR) stands against the other best oil stocks under $20.
The oil industry has long been criticized for its contributions to greenhouse gas emissions and global warming. Despite these concerns, oil remains a critical commodity in today’s world as it has historically played a pivotal role in the global industrial, household, and power sectors.
The dynamics of the oil market shifted dramatically two years ago following Russia’s invasion of Ukraine. Western sanctions on Russia, combined with efforts by European nations to reduce reliance on Russian crude, disrupted global supply chains and drove oil prices to record highs. As mentioned in our previous article ‘10 Best Oil Stocks Under $20’, prices soared to $119 per barrel in March 2023. The impact of sanctions remains, as Russia’s monthly revenue from seaborne crude oil registered a significant 15% decline in May 2024 compared to the previous month, as reported by The Centre for Research on Energy and Clean Air.
Demand and Supply in the Oil Market
According to the International Energy Agency, the global oil industry faces a challenging landscape, with slow demand growth coupled with supply chain disruptions. In the first half of 2024, the demand grew by just 800,000 barrels per day (kb/d), which is the slowest increase since 2020. The main contributor to this declining demand is the consistent drop in China’s consumption in the past four months. The trend in 2024 contrasts with the 2.1 million barrels per day (mb/d) surge in demand seen in 2023. The slowdown in China’s economy, combined with the shift towards electric vehicles, has driven the decline in global consumption.
On the other hand, the global supply increased in August by 80 kb/d, jumping to 103.5 mb/d. This surge was bolstered by high outputs from countries including Brazil and Guyana. This high demand balanced the production outages in Libya as well as maintenance-related slowdowns in Norway and Kazakhstan. However, OPEC+ countries are expected to face challenges, with supply projected at 810 kb/d by the end of 2024.
Although weaker-than-expected performance in China and falling margins in Europe are putting pressure on refinery activities, refinery output is expected to increase by 440 kb/d in 2024. Moreover, oil prices have declined, with Brent falling by over $10 per barrel in August and early September. This was mainly driven by concerns about Chinese demand, coupled with oversupply fears, according to IEA.
Despite challenging circumstances, companies are positioning themselves to align with shifting market dynamics. As a result, the crude oil industry is expected to surge at a compound annual growth rate (CAGR) of 1.8% until 2030, with an expected valuation of $1.6 trillion, according to Maximize Market Research.
Performance of Oil Stocks
Following the decline in oil prices, energy sector stocks have also delivered a mixed performance. The Energy sector surged by 13.3% on a year-to-date basis through July 2024. However, it still lagged behind the broader index by 3%. Thus, with a rapidly changing global scenario, energy sector stocks are expected to see swift movements in the near future.
Methodology
For this list, we scanned the Finviz screener and selected companies involved in the oil industry, focusing on areas relevant to oil production and its products. From that list, we selected companies with share prices under $20 as of September 24, 2024.
Among those, we chose seven companies with the highest number of hedge fund holdings and ranked them in ascending order based on these holdings, as of Q2 2024. Hedge fund data was sourced from Insider Monkey’s hedge fund database, which tracks the activity of 912 hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A worker in a hard hat looking up at an offshore drilling rig at sunset.
Petróleo Brasileiro S.A. – Petrobras (NYSE:PBR)
Number of Hedge Funds Holders: 31
Share Price: $14.40
Petróleo Brasileiro S.A. – Petrobras (NYSE:PBR) engages in the exploration, production, and marketing of oil and gas both domestically and internationally. Based in Brazil, the company operates through three segments: Exploration & Production, Refining, and Gas & Power. It also drills, processes, and transports crude oil from onshore and offshore oil fields.
Petróleo Brasileiro S.A. – Petrobras (NYSE:PBR) achieved a net income of $5.4 billion in Q2 2024, reflecting a steady operational performance despite a challenging exchange rate environment. This success was mainly driven by the 81% contribution of pre-salt production in total oil and gas volumes. This highlights the importance of this segment in Petrobras’s operations.
Moreover, the Marechal Duque de Caxias system, with a capacity of producing 180,000 barrels of oil and 12 million cubic meters of gas per day, has positioned the company well for future output increases. Additionally, the anticipated arrival of the FPSO Maria Quiteria is expected to further enhance production capabilities in the Jubarte field.
Petróleo Brasileiro S.A. – Petrobras (NYSE:PBR)’s strong operational efficiency is evidenced by a refining utilization rate of 91%, allowing it to capitalize on market demand for diesel and gasoline. Moreover, the company expects to begin operating its ROTA 3 gas pipeline in Q3 2024, increasing the supply of pre-salt gas to the domestic market. As a result, it will reduce its reliance on imports and bolster energy security.
However, Petróleo Brasileiro S.A. – Petrobras (NYSE:PBR) also faced several challenges particularly due to currency depreciation. The 11% depreciation of the Brazilian real against the U.S. dollar resulted in a negative accounting impact of $2.3 billion due to dollar-denominated obligations. Additionally, a $2.1 billion tax settlement contributed to a $300 million loss for the quarter.
Despite these challenges, the company plans to allocate between $13.5 billion and $14.5 billion for investments in 2024. It also plans to expand operations in Brazil’s equatorial region and the Pelotas Basin. Given PBR’s commitment to expand further, its share price increased by nearly 8% in the last three months. Moreover, 31 hedge funds tracked by Insider Monkey have collectively invested $3.7 billion in the company as of Q2 2024, earning PBR a place on our list of the best energy stocks to buy.
Overall PBR ranks 5th on our list of best oil stocks to buy under $20. While we acknowledge the potential of PBR as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PBR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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