Global Oil Demand Is Shrinking and Prices Are Still Above $90. These Are the Energy Stocks Built to Survive That Paradox.

Global oil demand growth is slowing. The International Energy Agency has projected that global oil demand growth will decelerate as electric vehicle adoption rises, fuel efficiency improves, China's economy slows, and elevated oil prices tied to the Iran conflict trigger demand destruction across parts of the global economy.

Yet despite those concerns, oil prices have remained above $90 per barrel amid geopolitical instability, underinvestment in supply, and persistent refinery constraints. That creates an unusual opportunity for oil stock investors.

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Two stocks to play the paradox

Oil companies are generating enormous cash flow, but some investors remain skeptical about the sector's long-term future. The result is that several large energy companies still trade at surprisingly modest valuations despite strong shareholder returns. That is particularly true for integrated oil majors such as Chevron (NYSE: CVX) and TotalEnergies (NYSE: TTE).

Chevron continues to generate massive free cash flow at elevated oil prices while maintaining one of the industry's strongest balance sheets. The company also expanded its long-term production profile through its Hess acquisition, giving Chevron additional exposure to Guyana, which is one of the world's fastest-growing low-cost oil developments.

To be sure, Chevron is not solely dependent on rising oil prices. The company has spent years lowering production costs, expanding LNG exposure, and improving capital efficiency, which, combined, can help Chevron remain profitable during periods of weaker oil prices.

TotalEnergies may be even more diversified. Unlike a lot of traditional oil majors, TotalEnergies has aggressively expanded into liquefied natural gas, solar, wind, and electricity infrastructure while still maintaining substantial upstream oil exposure.

The company now operates one of the world's largest LNG portfolios, which could become increasingly important as Europe continues to shift away from its reliance on Russian natural gas.

Valuations remain relatively low, too. TotalEnergies still trades at roughly 8.4x to 8.9x forward earnings while offering a dividend yield near 4.5%. Chevron also continues to return substantial capital to shareholders through dividends and buybacks, while maintaining a dividend yield of around 3.6%.

Surviving the paradox

Even if global oil demand growth slows, years of underinvestment in upstream production have left global spare capacity relatively tight outside of OPEC. At the same time, geopolitical risks involving the Middle East, Russia, and global shipping routes continue to support elevated crude prices.

That is why oil can remain above $90 even while long-term demand projections weaken. It's worth noting that the companies most likely to survive this environment are probably not smaller, highly leveraged shale producers dependent on constantly rising oil prices.

The safer long-term bets may instead be large integrated energy companies capable of generating strong free cash flow across multiple commodity cycles while continuing to return capital to shareholders through dividends and buybacks. Chevron and TotalEnergies accomplish those goals.

Jeff Siegel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.