Oil Prices Swooned 20% in June. Here’s What Energy Investors Need to Know.

Crude oil prices cooled off considerably in June. WTI, the primary U.S. oil price benchmark, slumped 20% for the month, closing at $69.50 per barrel. Meanwhile, Brent, the global benchmark, tumbled nearly 25%, closing at just below $73 per barrel. Both oil benchmarks are down more than 30% over the past quarter, their worst three-month period since 2020.

Here’s a look at what fueled the June swoon in crude oil prices and what it means for energy stocks.

Working around the global supply crunch

Crude oil prices initially soared this year due to the impact of the war with Iran on oil supplies from the Persian Gulf, which accounted for 20% of global oil supplies before the war. Iran attacked ships attempting to transit the Strait of Hormuz, slowing crude oil shipments to a crawl. That created an acute crude oil shortfall, fueling a massive price spike. At one point, oil prices doubled to nearly $120 a barrel.

However, a series of workarounds has helped lessen the impact. Saudi Arabia and the UAE ramped up pipeline volumes to bypass the Strait of Hormuz. Meanwhile, China reduced its oil imports, while the International Energy Agency coordinated an emergency oil release. Additionally, the U.S. military has helped coordinate safe passage for some ships through the Strait. Add in demand destruction from higher prices and higher output from places like the U.S. and Venezuela, and the oil market has worked around the supply problem.

With the U.S. and Iran signing a Memorandum of Understanding last month to reopen the Strait of Hormuz, the oil market is optimistic that oil flows from the Persian Gulf will begin normalizing this summer. That’s driving energy market analysts to lower their crude price forecasts. For example, Morgan Stanley recently lowered its fourth-quarter Brent oil outlook from $80 to $75 a barrel.

Oil companies can still thrive at lower oil prices

Higher oil prices are certainly a boon for oil company profitability. However, most oil companies have focused their efforts on becoming more profitable at lower oil prices.

For example, ExxonMobil (XOM 0.12%) has been undergoing a multiyear transformational strategy to enhance its profitability. It’s taking a two-pronged approach. ExxonMobil has delivered cumulative structural cost savings of $15.6 billion since 2019, and expects to reach $20 billion by 2030. The oil giant is also focusing its capital spending on developing its advantaged assets (the highest-margin and lowest-cost assets). Exxon expects its plan to deliver $25 billion in earnings growth and $35 billion in cash flow growth by 2030 at constant pricing and margins compared to 2024. The plan would also generate $145 billion in cumulative surplus cash over the period at an average Brent price of $65 to support shareholder distributions (dividend increases and share repurchases).

ConocoPhillips (COP 0.42%) has also built a low-cost resource base. Acquisitions, cost-savings initiatives, and low-cost developments have driven the company’s breakeven level down to the mid-$40s (the average WTI price needed to fund its current capital program). It only needs about $10 more per barrel to fund its dividend. ConocoPhillips expects to drive down its breakeven level to the low-$30s by 2029 by continuing to deliver cost savings and completing its major capital projects. Those initiatives will add $7 billion to its annual free cash flow by 2029 at $70 oil, nearly double last year’s level (and $6 billion if WTI averages $60 a barrel), giving it more money to grow its dividend and repurchase shares.

Crisis averted

The global energy market navigated a supply crunch caused by Iran’s attempts to close the Strait of Hormuz. That has taken the air out of crude prices, which tumbled 20% last month and are approaching their pre-war levels. While oil companies were cashing in on higher crude prices, most will still thrive at lower prices due to their cost-cutting efforts and high-return growth capital project investments. ExxonMobil and ConocoPhillips both expect to deliver meaningful growth over the next few years at even lower oil prices. That makes these oil stocks look like compelling long-term investment opportunities despite the June swoon in crude prices.