The Bank of America has recently made a bold prediction. It said oil could hit $ 100 a barrel in 2022, thanks to the ongoing imbalance between supply and demand.
Big oil companies also said the same, but for them, price will surpass $ 100. They gave the same reason, which is demand outstripping supply amid strong global economic recovery.
Undoubtedly, this scenario will be a boon for oil companies, more specifically on Occidental Petroleum (NYSE: OXY), Marathon Oil (NYSE: MRO) and Devon Energy (NYSE: DVN).
Some analysts say Occidental Petroleum will be the most profitable, as it has the ability to buy and hold shares in the long term, given the damage done during the 2020 oil crisis.
Great profit will also be gained at Marathon Oil, as the continued oil rally could push the company's revenues and cash flows up. This year, Marathon already expects to receive a free cash flow (FCF) of $ 1.1 billion at an average WTI price of $ 50 per barrel. So, at $ 60 a barrel, the company could get $ 1.6 billion FCF! And with oil trading at $ 70 a barrel, Marathon should be able to generate even higher cash flows and use the additional cash to pay off more debt, not to mention reward shareholders with higher returns. In fact, as of the end of the first quarter, Marathon had already paid off $ 500 million in debt, and plans to cut another $ 500 million this year. The company also increased its quarterly dividend by 33% in the first quarter.
As for Devon Energy, dividends increase at the same time that prices increase. In short, as oil rises, so do payments. Investors also receive their payments immediately, thanks to a unique variable dividend system. So, if oil soars to triple figures again, Devon could pay a massive dividend to its investors.
All this potential windfall makes the three oil companies very attractive, and suggests that investors should not miss the opportunity to trade when oil jumps to $ 100.
