Oil Could Hit $150 or Higher, Experts Warn. These Energy Stocks Are Built for the Shock.

The continued oil supply disruption caused by the Strait of Hormuz closure recently sent crude prices to their highest level since 2022 at nearly $120 a barrel. Several oil market experts are warning that crude prices could eventually top $150 a barrel if the Strait doesn't reopen soon. That would top the prior record of $147 a barrel in 2008.

Here's what's fueling those warnings and the energy stocks built for an oil shock.

Image source: Getty Images.

Dire warnings

JPMorgan recently warned that oil prices could spike to $120 to $130 a barrel in the near term, with the potential to surge above $150 if the Strait of Hormuz remains disrupted into mid-May. The bank isn't alone in this view. Onyx Capital Group's CEO Greg Newman forewarned earlier this year that, "We're very much in the $150 range, but I don't think it's ridiculous at all to [suggest] $200." Meanwhile, the chief market strategist of Longview Economics, Chris Watling, said that he "wouldn't be surprised if oil went to 200 bucks, or even 250, because commodity prices go parabolic when there's a shortage of supply."

The Strait of Hormuz closure by Iran and U.S. Navy blockade is having a massive impact on the global oil market. Oil production in the Persian Gulf has fallen 57% due to the closure. The global economy is offsetting this enormous supply shock by pulling a record of 11 million to 12 million barrels per day from storage. It can't keep draining its stockpiles indefinitely. At some point, oil will need to rise high enough to force users to lower their demand.

Built for this

The biggest beneficiary of higher prices would be low-cost oil producers. Oil giant Chevron (NYSE: CVX) has the lowest upstream breakeven level in the oil patch at around $30 a barrel. Chevron can fully fund its capital program and dividend at sub-$50 oil. The company has enhanced its ability to capitalize on higher prices this year by completing several major growth capital projects and by acquiring Hess last year, which already had it on track to generate an additional $12.5 billion of free cash flow this year at $70 oil. It will produce an even bigger gusher of free cash flow if crude prices top $150 a barrel. It can use that windfall to repurchase shares at the high-end of its $10 billion to $20 billion target range and build an even stronger balance sheet to withstand lower oil prices in the future.

ConocoPhillips' (NYSE: COP) current breakeven level is in the mid-$40s, and it's about $10 more to cover its dividend. ConocoPhillips was on track to produce nearly $20 billion in operating cash flow this year at $60 oil, more than enough to cover its capital program ($12 billion) and dividend ($4 billion). At $80 oil, it could produce over $25 billion in cash. Higher oil prices are allowing it to boost its capital program by $500 million and should enable it to ramp up its share repurchase rate from its current level of $1 billion a quarter.

Oil could keep rising

While oil prices have already surged to their highest level since 2022, they could have further to go. That will benefit low-cost producers such as Chevron and ConocoPhillips, which would make even more money this year. That makes them two of the best oil stocks to buy to capitalize on higher crude prices.

JPMorgan Chase is an advertising partner of Motley Fool Money. Matt DiLallo has positions in Chevron, ConocoPhillips, and JPMorgan Chase. The Motley Fool has positions in and recommends Chevron and JPMorgan Chase. The Motley Fool recommends ConocoPhillips. The Motley Fool has a disclosure policy.