Summary:

• Oil prices have recently dipped. However, there are factors that could imply its recovery.
• However, investors should still be cautious and stick with shares of proven companies such as Exxon Mobil and Chevron.
• In a weak oil price environment, Exxon Mobil is the most financially promising oil major to outperform the market.
• Likewise, although Chevron may underperform in the short run, it should generate significant value for investors in the long term.

With the price of the US benchmark, WTI crude, dropping by almost 15% since mid-April, oil prices have come under pressure, sitting at around $45/barrel. The result of these price drop are mostly attributed to growing fears regarding significant oil gluts. However, analysts and financial writers alike believe that prices will make a return in the near future. Investors, however, should still exercise certain levels of conservatism when considering the energy industry. Such safety can be found in larger players in the industry such as Chevron (NYSE:$CVX) and Exxon Mobil (NYSE:$XOM).

Despite pledges by OPEC and its partners to cut back output, most recent monthly reports show that production had actually increased by 336,100 barrels per day from April due to uptake in production from Libya, Nigeria and Iraq. In the short term, there are a number of events that may push the price of oil higher. Saudi Arabia, OPEC’s top dog has signaled that there can easily be an increase in its efforts to restrict supply if the current agreement to stall production fails to control the excess oil supply.

Production growth in the U.S. however, has recently shown signs of slowing down. As the summer bring about more favourable driving conditions, crude oil and gasoline stockpiles in North America may also see gradual declines. With OPEC’s latest report, commercial crude supply in OECD countries have experienced decreases of 339 million barrels from the end of last year to just 251 million barrels above the five-year average. Both Russia and Saudi Arabia’s energy ministers Alexander Novak and Khalid Al-Falih respectively, are confident in the eventual decline of global crude oil stockpiles to near the five-year average by the end of 2017.

Featured Image: depositphotos/num_skyman