2 Oil Stocks That Can Weather the Current Volatility

Oil prices have been excruciatingly volatile since the start of the year. They soared as tensions with Iran grew. Brent oil, the global benchmark, peaked near $120 a barrel after Iran struck energy infrastructure in the Persian Gulf. However, Brent has more recently fallen back toward the $100-a-barrel level on news of productive conversations between the U.S. and Iran. Crude could continue to fall if those talks lead to a ceasefire or soar if tensions reignite.

All this volatility makes it challenging to invest in oil stocks. Here are two oil stocks that can weather the current market turbulence.

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ExxonMobil

ExxonMobil (NYSE: XOM) is a behemoth in the oil patch. Last year, the oil giant generated $28.8 billion in earnings and $52 billion in cash flow from operations, both of which ranked first among international oil companies (IOCs). ExxonMobil has become much more profitable over the last five years through its transformational strategy of investing in its advantaged resources (lowest cost and highest margin) while also delivering structural cost savings ($15.1 billion since 2019, more than all other IOCs combined). Exxon also has the best balance sheet in the oil patch with an industry-leading leverage ratio of 11%.

The oil giant expects to invest billions of dollars in developing its advantaged resources over the next five years, while also delivering $20 billion in cumulative structural cost savings by 2030. This strategy should grow its annual earnings capacity by $25 billion and cash flow by $35 billion by 2030, at oil prices and margins similar to 2024 levels. ExxonMobil also expects to generate $145 billion in surplus cash during that period at $65 oil to support its growing dividend (43 consecutive years and counting) and share repurchase program ($20 billion expected in 2026).

Chevron

Chevron (NYSE: CVX) might not be as big and profitable as Exxon, but it's not too far behind its larger rival. It has one of the industry's lowest breakeven levels (less than $50 a barrel) and a fortress balance sheet that's almost as strong as Exxon's. Chevron also has a similar strategy of investing in its best assets and delivering structural cost savings ($1.5 billion last year). This strategy enabled Chevron to grow its adjusted free cash flow by 35% last year, even as oil prices fell by 15%. That allowed the company to return a record $27 billion in cash to shareholders through dividends and share repurchases.

The oil giant is on track to produce an additional $12.5 billion in free cash flow this year, compared with last year's level ($20.2 billion), at $70 oil. Meanwhile, Chevron can grow its free cash flow at a compound annual rate of more than 10% through 2030 at $70 oil. That should support continued dividend increases (39 straight years) and meaningful share repurchases ($10 billion to $20 billion per year).

Built to withstand volatility

Exxon and Chevron have spent the past several years focused on becoming more profitable oil companies by investing in their best assets and reducing costs. That puts them in an even better position to weather the sector's current volatility. They can make more money at higher prices while still thriving if they go lower, which makes them ideal oil stocks to buy and hold long-term.

Matt DiLallo has positions in Chevron. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.