Why ConocoPhillips Stock Rocketed More Than 16% in March

Shares of ConocoPhillips (NYSE: COP) surged 16.3% in March, significantly outperforming the 5% decline in the S&P 500. The oil company benefited from a big surge in crude oil prices last month.

Here's a look at what fueled its rally last month and whether the oil stock is a buy.

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Oil's epic surge

Brent oil, the global benchmark price, skyrocketed 43% in March to nearly $104 per barrel. Meanwhile, WTI, the U.S. oil price benchmark, surged 51% last month. That was their biggest monthly gain since 2020. Both oil price benchmarks gained more than 70% during the first quarter, the biggest quarterly gain for Brent since 1990.

The war with Iran was the sole catalyst for the rise in crude prices last month. Iran has responded to military strikes by the U.S. and Israel by attacking the energy market. It has hit ships making their way out of the Persian Gulf through the Strait of Hormuz. As a result, it has effectively closed the Strait to shipping traffic. Before the war, 20% of global oil and LNG supplies flowed through the Strait each day.

Additionally, Iran has attacked energy infrastructure throughout the Persian Gulf. It has damaged several energy facilities, including two LNG trains operated by QatarEnergy in Qatar. The damage will knock 17% of Qatar's LNG production offline for repairs over the next three to five years.

The upsides and downsides of the war

Surging oil prices will have a big impact on ConocoPhillips' bottom line. The U.S. oil and gas giant produced $7.3 billion in free cash flow last year, when Brent averaged $69 a barrel, and WTI was around $65. The company expects to produce an additional $1 billion in free cash flow this year at similar oil prices, driven solely by lower capital spending and other cost savings.

ConocoPhillips can produce an even bigger profit gusher at higher oil prices. Every $1 increase in Brent's price boosts its annual cash flow by $65 million to $75 million. Meanwhile, every $1 increase in a barrel of WTI boosts its annual cash flow by $140 million to $150 million.

However, the war will also have some negative impact on ConocoPhillips. It's a partner with QatarEnergy on three LNG projects in Qatar. One is currently operating while two more are under construction. They're part of a trio of LNG projects the company expected to finish by 2028, which would add another $1 billion to its annual cash flows in both 2027 and $2028. The war is currently disrupting exports from the operating facility. It could also delay the completion of the other two projects (QatarEnergy expected to finish one in the second half of this year).

Is ConocoPhillips still a buy after its March surge

Shares of ConocoPhillips are now up about 40% this year. The oil stock could have much further to go. Oil prices are currently above $110 a barrel and could top $150 in short order if there's no ceasefire deal this week. Meanwhile, the company expects to more than double its free cash flow by 2029 (assuming oil averages $70), driven by cost savings and the completion of a quartet of major capital projects. This combination of near-term upside potential to higher prices and long-term growth at lower prices makes ConocoPhillips stock still a buy even after last month's surge.

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