Oil Surged to Its Highest Level Since 2022. Here's Why And the Best Oil Stocks to Buy.

Oil prices are surging again on Wednesday. The price of Brent oil (the global price benchmark) jumped more than 6% today to over $118 a barrel, while WTI (U.S. oil benchmark) leaped nearly 7% to around $107 per barrel. At one point, Brent traded at $119.76 per barrel, its highest level since 2022, while some other oil grades are trading near record levels of $150 a barrel.

Oil prices are soaring amid the ongoing impasse in peace talks between the U.S. and Iran, prolonging the closure of the Strait of Hormuz and U.S. Navy blockade. The supply disruption has caused a massive drain on global oil inventories. Here's what's happening in the oil market and some top oil stocks to buy to capitalize on higher prices.

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The supply shock

The war with Iran has impacted more than 12 million barrels per day of oil supply, about 12% of total demand. The world is covering this shortfall by drawing down oil inventories and reducing demand.

The U.S. Energy Information Administration reported that U.S. oil exports hit a record 6.4 million barrels per day last week, up 1.6 million barrels per day from the prior week. Most of these barrels came from storage, as U.S. crude inventories drew down by 6.2 million barrels to 459.5 million barrels.

While the U.S. and other countries can continue to draw down storage inventories for a while, they won't last forever. At this point, U.S. producers aren't ramping up their drilling activities to increase output. As a result, oil prices will likely remain elevated through the end of this year, because the world will need to restock inventories, which countries could rebuild above pre-war levels to increase preparedness for another supply shock.

Cash in on higher for longer oil prices

Unless there's a rapid reopening of the Strait of Hormuz and a quick restart of shut-in production across the Persian Gulf, oil prices could remain high into 2027. That will benefit oil companies, many of which have focused on enhancing their ability to prosper at lower prices.

ExxonMobil (NYSE: XOM) is a prime example. The global energy giant has been working on a transformational strategy to improve its profitability over the past several years. It's investing heavily in its advantaged resources (lowest-cost and highest-margin) while also working to deliver industry-leading structural cost savings ($15.1 billion in cumulative savings delivered since 2019). Exxon's strategy currently has it on track to grow its annual earnings capacity by $25 billion and cash flow by $35 billion by 2030, at constant oil prices and margins relative to 2024 levels. Its five-year plan would also deliver $145 billion in surplus cash at $65 oil. Exxon's strategy to improve its profitability has put it in an even stronger position to cash in on higher oil prices this year. That could enable Exxon to repurchase more shares than the $20 billion it initially expected this year.

Devon Energy (NYSE: DVN) has also put itself in a better position to make more money at lower oil prices. The company has grown its scale through a series of acquisitions. It's in the process of further increasing its scale by combining with Coterra Energy to create a premier U.S. shale operator, in a deal that should close this quarter. The larger oil company will generate even more cash flow as it combines capabilities and delivers cost savings. Devon expects the deal to enable it to accelerate shareholder returns through a higher dividend and a share repurchase program of more than $5 billion. Higher oil prices could allow it to execute that buyback faster than initially expected.

Oil could remain elevated for a long time

The prolonged closure of the Strait of Hormuz has pushed crude oil prices to their highest level since 2022. Oil could go even higher if it remains closed indefinitely. Several oil companies put themselves in a strong position to capitalize on higher oil prices by focusing on becoming more profitable at lower prices, including ExxonMobil and Devon Energy. That makes them among the best oil stocks to buy right now, given the likelihood that oil prices will remain high for the rest of this year.

Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.