While renewable energy sources garner increasing attention, the demand for oil and gas remains strong, fueled by the growing energy needs of developed and developing nations. However, the industry is highly volatile, with profits and losses often hinging on minor demand shifts or strategic actions by petrostates like Saudi Arabia and Russia, whose agendas may conflict with those of public oil companies. Supply-demand imbalances frequently trigger significant price swings, as evidenced in early 2022 when Russia’s invasion of Ukraine drove crude prices into triple digits for the first time in years.

The State of the Oil and Gas Market

Global oil prices have retreated from their early-October highs, with market focus shifting from supply risks to concerns about global economic health, sluggish demand, and ample supply. After surpassing $80 per barrel in early October, Brent crude futures dropped to approximately $72 per barrel by mid-November as fears of an Israeli attack on Iran’s energy infrastructure subsided. Meanwhile, the global oil supply is steadily increasing. Following the early November U.S. elections, the United States is expected to lead non-OPEC+ supply growth, contributing 1.5 million barrels per day (mb/d) in both 2024 and 2025, alongside higher output from Canada, Guyana, and Argentina. Brazil, which faced operational challenges and outages this year, is projected to add 210,000 barrels per day (kb/d) by 2025, reaching 3.7 mb/d as new capacity exceeding 800 kb/d comes online.

In another vein, the International Energy Agency (IEA)’s World Energy Outlook 2024 predicts that global oil demand will increase by about 2.6 million b/d from 2023 to 2030 before peaking, driven by rising EV adoption and improved fuel efficiency. Petrochemicals are expected to overtake road transport as the primary driver of oil demand growth. By 2050, the IEA projects global oil demand to average 93.1 million b/d, 4.3 million b/d lower than its prior estimate under the Stated Energy Policies Scenario (STEPS). The most significant declines are expected in aviation and shipping, with demand dropping by 2.7 million b/d as sustainable aviation fuels gain traction and hydrogen-based alternative fuels are increasingly adopted in maritime transport.

U.S. – China Oil Politics

China’s oil refiners processed 4.6% less crude in October compared to the same period last year, attributed to plant closures and reduced operating rates among smaller independent refiners, according to data from the National Bureau of Statistics released on November 15. Simultaneously, China’s factory output growth slowed, and persistent weakness in its property sector added to investor concerns about the economic health of the world’s largest crude importer.

Compounding these challenges, U.S. President-elect Donald Trump advocates for reducing regulations on the oil sector to boost U.S. production, a move that could exert downward pressure on oil prices. However, with U.S. crude output already near record highs, questions arise about the industry’s capacity to increase production further. Even if they could, companies may hesitate, as ramping up output could drive prices down, potentially impacting profits and shareholder returns. Most notably, however, Trump has vowed to revoke China’s most-favored-nation trading status and impose tariffs exceeding 60% on Chinese imports—far surpassing the levels enacted during his first term. If crude oil is included, it could squeeze the margins of U.S. refiners reliant on imported oil. Additionally, it may harm U.S. exports of crude and refined products if other nations respond with retaliatory tariffs. In light of this, Goldman Sachs Research economists have modestly lowered their 2025 growth forecast for China, attributing the adjustment to anticipated tariff increases under a Trump administration. Chief economist Jan Hatzius further cautioned that more substantial downgrades could follow if the trade conflict intensifies.

Our Methodology

In this article, we analyzed screeners and ETFs to pinpoint oil and gas industry stocks with an average share price upside potential of 15% or more as of market close on November 18, 2024. We ranked the top 10 stocks in ascending order based on their average share price upside potential. Additionally, we included hedge fund sentiment for each stock, as of Q3 2024, to offer readers deeper insights.

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).

10. Diamondback Energy, Inc. (NASDAQ:FANG)

Average Analyst Price Target: $209.64

Upside Potential: 15.25%

Number of Hedge Fund Holders as of Q3: 49

Diamondback Energy, Inc. (NASDAQ:FANG) is a leading oil and natural gas company focused on the acquisition, development, and exploration of onshore reserves. The company operates primarily in the Permian Basin, targeting the Spraberry and Wolfcamp formations in the Midland Basin and the Wolfcamp and Bone Spring formations in the Delaware Basin, spanning West Texas and New Mexico.

On November 5, Truist Securities reaffirmed its Buy rating on Diamondback Energy, Inc. (NASDAQ:FANG), maintaining a price target of $230. The firm emphasized the company’s operational efficiency, highlighting its ability to sustain stable production levels while reducing capital expenditures. Truist projected that Diamondback will surpass 475 thousand barrels of oil equivalent per day (mbopd) in production next year, with capital spending under $4 billion, positioning the company’s productivity over 30% higher than its large peers operating with similar budgets.

Moreover, on September 10, Diamondback Energy, Inc. (NASDAQ:FANG) completed its merger with Endeavor Energy Resources, L.P., solidifying its status as one of the leading independent oil and energy companies in the United States. The $26 billion deal, including Endeavor’s net debt, was initially signed in February and marks a significant milestone for the company.

Looking ahead, Diamondback Energy, Inc. (NASDAQ:FANG) is focused on maintaining financial flexibility and maximizing free cash flow. It has guided 2025 capital expenditures between $4.1 billion and $4.4 billion while remaining cautious about macroeconomic challenges. The company prioritizes shareholder returns, supported by accelerated synergy achievements and lower well costs, which now stand at $600 per foot.

ClearBridge Select Strategy stated the following regarding Diamondback Energy, Inc. (NASDAQ:FANG) in its first quarter 2024 investor letter:

“Our final addition was Diamondback Energy, Inc. (NASDAQ:FANG), a leading oil and gas producer that agreed to acquire fellow exploration and production company Endeavor Energy Resources in the quarter. The deal should allow Diamondback to capture operating synergies and streamline costs by reducing rig redundancies and optimizing production techniques. Endeavor has previously prioritized double-digit production growth over capital discipline, leading to the quick depletion of its core inventory in the oil-rich Midland Basin. Diamondback’s focus on free cash flow generation should allow the combined entity, which we consider an evolving opportunity, to rein back its production levels and extend the longevity of this high-quality acreage to fund cash returns. Diamondback replaces the energy exposure the portfolio will lose with the pending acquisition of top 15 holding Pioneer Natural Resources by Exxon Mobil.”

9. ConocoPhillips (NYSE:COP)  

Average Analyst Price Target: $137.63

Upside Potential: 20.98%

Number of Hedge Fund Holders as of Q3: 66

Founded in 1917, ConocoPhillips (NYSE:COP) is a Texas-based global energy company specializing in the exploration, production, transportation, and marketing of crude oil, bitumen, natural gas, liquefied natural gas, and natural gas liquids.

In Q3, ConocoPhillips (NYSE:COP) reported a strong performance, surpassing production guidance with a 3% year-over-year increase and adjusted earnings of $1.78 per share. Susquehanna responded by maintaining a Positive rating on the stock and raising its price target to $148 from $144. Moreover, the company’s production reached 1,918 thousand barrels of oil equivalent per day (Mboe/d), 1% above the projected 1,890 Mboe/d.

ConocoPhillips (NYSE:COP) remains focused on delivering value to shareholders, reaffirming its plan to return $9 billion to shareholders this year. As part of this strategy, the company expanded its share repurchase program, authorizing up to $20 billion in buybacks. Additionally, it is pursuing strategic growth opportunities, including the acquisition of Marathon Oil. The deal, expected to close this quarter, aims to achieve synergies double the original estimates.

Looking ahead, ConocoPhillips’ 2025 budget outlines capital expenditures below $13 billion, with plans for low single-digit production growth, reinforcing its position as a leader in the energy sector.

Here’s what Invesco Growth and Income Fund said about ConocoPhillips (NYSE:COP) in its Q2 2024 investor letter:

“Stock selection in the industrials and health care sectors detracted from relative performance during the quarter. Selection and an underweight in consumer staples also hurt relative return as the sector was one of just two index sectors with a positive return for the quarter. ConocoPhillips (NYSE:COP): The company announced its acquisition of Marathon Oil in May. The deal is expected to increase earnings and will increase the scale of Conoco’s production assets. However, the stock traded lower on the news.”

8. Shell plc (NYSE:SHEL)  

Average Analyst Price Target: $63.65

Upside Potential: 25.02%

Number of Hedge Fund Holders as of Q3: 48

Shell plc (NYSE:SHEL) is a global energy leader, engaged in the exploration, production, refining, and sale of oil, gas, chemicals, and renewable energy products. Its operations span both upstream and downstream markets, reinforcing its diverse energy portfolio.

On October 23, Shell Energy North America, a subsidiary of Shell plc (NYSE:SHEL), announced an agreement to acquire a 100% equity stake in RISEC Holdings, LLC. RISEC owns a 609-megawatt (MW) two-unit combined-cycle gas turbine power plant in Rhode Island, USA. This acquisition secures long-term supply and capacity offtake for Shell in the deregulated Independent System Operator New England (ISO New England) power market.

For the third quarter, Shell plc (NYSE:SHEL) reported adjusted earnings of $6 billion, surpassing analyst estimates of $5.3 billion, while free cash flow increased to $10.83 billion, compared to $7.5 billion in the same period last year. Meanwhile, cash capital expenditure fell to $4.95 billion, down from $5.65 billion in Q3 2023. The company also announced plans to repurchase $3.5 billion in shares over the next three months while maintaining its dividend at 34 cents per share.

Piper Sandler reaffirmed its Overweight rating on Shell plc (NYSE:SHEL) with a price target of $82 on October 8. The firm highlighted Shell’s strong operational performance, noting LNG liquefaction volumes of 7.5 million tonnes (MT), exceeding the 7.1 MT estimate. Additionally, Shell’s exploration and production (E&P) output remained steady sequentially, defying expectations of a decline.

7. Occidental Petroleum Corporation (NYSE:OXY)  

Average Analyst Price Target: $63.65

Upside Potential: 25.02%

Number of Hedge Fund Holders as of Q3: 71

Occidental Petroleum Corporation (NYSE:OXY), based in Houston and incorporated in Delaware, is a leading U.S. company specializing in hydrocarbon exploration across the United States and the Middle East. The company also operates petrochemical manufacturing facilities in the U.S., Canada, and Chile.

On November 14, Susquehanna maintained a Positive rating on Occidental Petroleum Corporation (NYSE:OXY) but revised the stock’s price target downward to $65 from $77. This adjustment came after the company’s third-quarter results, which exceeded expectations for both production and earnings per share. Notably, the company reported a substantial debt reduction, with Occidental Petroleum Corporation (NYSE:OXY) paying off $4 billion—reaching nearly 90% of its short-term $4.5 billion debt reduction goal—just two months after closing the CrownRock acquisition.

Occidental Petroleum Corporation (NYSE:OXY) plans to sustain a five-rig program within its CrownRock assets through 2025, a move expected to drive mid-single-digit production growth. The company also aims to maintain flexibility in capital expenditures across its broader U.S. onshore portfolio, adjusting to shifts in commodity prices. With the addition of CrownRock assets and strong performance from new wells in the Permian Basin, Occidental Petroleum Corporation (NYSE:OXY) anticipates reaching a production level of 1,450 thousand barrels of oil equivalent per day (Mboe/d) in the fourth quarter.

6. Riley Exploration Permian Inc (NYSE:REPX)

Average Analyst Price Target: $45.00

Upside Potential: 29.01%

Number of Hedge Fund Holders as of Q3: 11

Riley Exploration Permian, Inc. (NYSE:REPX) specializes in the exploration, refinement, and development of oil and natural gas, operating within the Permian Basin across Texas and New Mexico.

The company delivered a strong Q3 2024 performance, highlighted by its 15th consecutive dividend declaration, which was increased by 6% to $0.38 per share, and a $35 million reduction in debt. Additionally, Riley Exploration Permian, Inc. (NYSE:REPX) reported a 6% rise in net production and an 11% increase in equivalent production, driven by the success of its 2024 drilling campaign.

Riley Exploration Permian, Inc. (NYSE:REPX) remains focused on long-term value creation and operational excellence, emphasizing infrastructure investments and organic growth. This approach is fueling a projected 14%-15% year-over-year oil production growth in 2024. The company also announced a reduction in fourth-quarter capital expenditure guidance, along with advancements in its CO2 pilot project and RPC Power joint venture.

5. Schlumberger Limited. (NYSE:SLB)

Average Analyst Price Target: $60.97

Upside Potential: 39.90%

Number of Hedge Fund Holders as of Q3: 65

Schlumberger Limited (NYSE:SLB) is a global leader in energy technology, operating across four core divisions: Digital & Integration, Reservoir Performance, Well Construction, and Production Systems.

In its third-quarter earnings report, Schlumberger Limited (NYSE:SLB) posted revenues of $9.2 billion, with an adjusted EBITDA margin of 25.6%. Growth in the Digital & Integration division, fueled by strong digital sales, offset a revenue dip in the Well Construction segment. The company also reinforced its commitment to shareholder value by repurchasing over $500 million in shares during the quarter. Additionally, the planned sale of the Palliser property in Canada is expected to accelerate SLB’s financial targets, with projections now exceeding $3 billion in returns for 2024 and $4 billion for 2025.

That said, Goldman Sachs maintained its Conviction Buy rating on Schlumberger Limited (NYSE:SLB) in October, with a price target of $52, highlighting the stock’s recent underperformance as a strategic entry point given its strong free cash flow generation and capital return potential. Meanwhile, Barclays adjusted its price target from $63 to $61, maintaining an Overweight rating. This adjustment reflects SLB’s above mentioned decision to divest the Palliser APS project and challenges from reduced customer activity amid lower oil prices and broader economic pressures.

4. Devon Energy Corporation (NYSE:DVN)  

Average Analyst Price Target: $51.85

Upside Potential: 33.74%

Number of Hedge Fund Holders as of Q3: 41

Devon Energy Corporation (NYSE:DVN), established in 1971 and headquartered in Oklahoma City, Oklahoma, is a key player in the U.S. energy sector, specializing in the exploration, development, and production of oil, natural gas, and natural gas liquids.

On September 27, the company completed the $5 billion acquisition of Grayson Mill, significantly expanding its footprint in the Williston Basin. This strategic addition brings 307,000 net acres to Devon’s portfolio and is projected to boost production by 100,000 barrels of oil equivalent per day (BOE/D) by fiscal year 2025.

In its third-quarter earnings, Devon Energy Corporation (NYSE:DVN) reported revenue of $4.02 billion, exceeding the consensus estimate of $3.72 billion. However, adjusted earnings per share came in slightly below expectations at $1.10, compared to the analyst consensus of $1.11. Despite the slight earnings miss, the strong revenue performance underscores the company’s ability to navigate market conditions effectively.

According to 17 Wall Street analysts, Devon Energy Corporation (NYSE:DVN) holds a consensus rating of Moderate Buy. The average price target indicates a potential upside of 33.74%.

3. Transocean Ltd. (NYSE:RIG)

Average Analyst Price Target: $51.85

Upside Potential: 54.07%

Number of Hedge Fund Holders as of Q3: 30

Transocean Ltd. (NYSE:RIG) is a leading offshore drilling contractor, specializing in ultra-deepwater and harsh-environment operations. The company operates a global fleet of rigs, providing services to major oil and gas companies worldwide.

On September 10, Transocean Ltd. (NYSE:RIG) announced a notable contract award for its ultra-deepwater drillship, Deepwater Atlas. The $232 million contract, secured with bp (formerly British Petroleum), will support operations in the U.S. Gulf of Mexico. Scheduled to commence in Q2 2028, this project is expected to make a substantial contribution to the company’s backlog. Transocean Ltd. (NYSE:RIG) is also in discussions to merge with Seadrill Limited, aiming to leverage the anticipated rebound in oil and gas exploration. This merger is expected to bolster Transocean’s competitive position and improve operational efficiency.

In its third-quarter 2024 financial results, Transocean Ltd. (NYSE:RIG) reported an adjusted EBITDA of $342 million, alongside contract drilling revenues of $948 million. The company achieved a 36% EBITDA margin, with near-full fleet utilization projected for the year. Transocean’s total backlog increased by 7.5% to $9.3 billion, reflecting strong future business commitments. While the company recorded a net loss of $494 million for the quarter, CEO Jeremy Thigpen highlighted operational discipline, ongoing negotiations for future projects, and a potential return to shareholder distributions by late 2026 as key areas of optimism.

2. Clean Energy Fuels Corp. (NASDAQ:CLNE)

Average Analyst Price Target: $5.38

Upside Potential: 99.81%

Number of Hedge Fund Holders as of Q3: 22

Clean Energy Fuels Corp. (NASDAQ:CLNE) is a leading provider of low-carbon fuel solutions for transportation, specializing in renewable natural gas (RNG) while also offering compressed natural gas (CNG) and liquefied natural gas for medium and heavy-duty vehicles. The company operates across the United States and Canada, playing a key role in advancing clean energy in the transportation sector.

For the third quarter of 2024, Clean Energy Fuels Corp. (NASDAQ:CLNE) reported strong financial and operational performance. Revenue increased to $104.9 million, up from $95.6 million in Q3 2023, while net loss narrowed to $18.2 million from $25.8 million. Adjusted EBITDA rose significantly to $21.3 million, compared to $14.2 million a year earlier, showcasing the company’s enhanced operational efficiency. The company also achieved a 5.1% year-over-year increase in RNG sales, totaling 59.6 million gallons, and continued its growth trajectory through new projects and partnerships, including a new RNG facility and additional CNG fueling stations.

Earlier this year, Clean Energy Fuels Corp. (NASDAQ:CLNE) completed the construction of a third production train at its LNG plant in Boron, California. This expansion increased the plant’s production capacity by 50%, enabling it to produce up to 270,000 gallons of LNG daily. Already the largest facility of its kind in the Southwest U.S., the enhanced capacity positions the company to meet the rising demand for cleaner-burning LNG from industries striving to decarbonize, such as city transit systems and maritime shipping.

1. W&T Offshore, Inc. (NYSE:WTI)

Average Analyst Price Target: $7.80

Upside Potential: 288.06%

Number of Hedge Fund Holders as of Q3: 15

W&T Offshore, Inc. (NYS:WTI), headquartered in Houston, Texas, is an independent oil and natural gas producer specializing in the acquisition, exploration, and development of properties in the Gulf of Mexico. Founded in 1983, the company engages in the production and sale of crude oil, condensate, natural gas liquids, and natural gas.

In Q3 2024, W&T Offshore, Inc. (NYS:WTI) faced notable operational challenges, reporting a net loss of $36.9 million ($0.25 per share) and a drop in production to 31.0 MBoe/d from 34.9 MBoe/d in Q2, largely due to hurricane-related disruptions and downtime, while revenue declined by 15% quarter-over-quarter to $121.4 million. Despite this, the company achieved its 27th consecutive quarter of positive free cash flow at $3.9 million, showcasing financial resilience. Lease operating expenses were also well-managed at $72.4 million, coming in below guidance. Additionally, W&T maintained its $0.01 quarterly dividend, reflecting its commitment to shareholder returns despite the challenges.

The company continues to expand its footprint in the Gulf of Mexico, where its operations are concentrated. Earlier in 2024, W&T Offshore, Inc. (NYS:WTI) completed a $72 million acquisition to enhance its regional operations, aligning with its growth strategy through targeted acquisitions in the offshore drilling sector.

While we acknowledge the potential of WTI, our conviction lies in the belief that certain 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 WTI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.

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