Rising oil prices, driven by escalating geopolitical tensions in the Middle East, are fueling a renewed push in the upstream sector. The fear of significant disruptions to global oil supply, exacerbated by recent developments such as the Israeli strikes on Iranian-linked assets in Syria, intensified concerns over the stability of production in the region.

This propelled crude oil prices upward, with further support coming from the production cuts implemented by the Organization of the Petroleum Exporting Countries (OPEC+) in their ongoing efforts to maintain price strength.

As conflicts heighten and OPEC+ continues its restrictive production strategy, oil prices are poised to be elevated through 2024. Supply constraints, coupled with uncertainty surrounding the situation in the Middle East, are encouraging more exploration and production (E&P) activities in regions outside the geopolitical turmoil, particularly in U.S. shale reserves. This uptick in exploration is expected to lead to a greater number of operational drilling rigs, and, consequently, a boost in production.

Upstream oil companies are well-positioned to capitalize on these favorable market conditions. Higher oil prices generally translate to improved profit margins for businesses engaged in the extraction and production of crude oil. As a result, investors are increasingly eyeing companies with solid fundamentals and the ability to scale production efficiently. Stocks of companies that focus on E&P, especially those with substantial oil reserves and operational flexibility, are likely to attract investor attention in the current environment.

Key Beneficiaries: COP, OXY & EPSN

ConocoPhillips (COP Quick QuoteCOP - Free Report) is set to benefit significantly from the ongoing oil price rally. The company’s expansive asset portfolio spans critical oil-producing regions, such as Alaska, the Lower 48 states and Canada.

In Alaska, COP operates major fields like Prudhoe Bay and Kuparuk, which collectively contributed 173 thousand barrels per day (MBD) of crude oil in 2023. Its operations in U.S. shale basins, including the Delaware, Eagle Ford and Bakken plays, delivered a combined 569 MBD of production last year. ConocoPhillips’ acquisition of the remaining stake in the Surmont oil sands project in Canada solidifies its position in the market, ensuring steady output and cost-efficient production.

Occidental Petroleum (OXY Quick QuoteOXY - Free Report) is another key player set to thrive in this bullish market. The company holds a dominant position in the Permian Basin, where it has leveraged enhanced oil recovery techniques and large-scale infrastructure to increase production efficiency.

In 2023, Occidental produced 584 thousand barrels of oil equivalent per day in the Permian, benefiting from its expertise in CO2 recovery methods. Its deep-water operations in the Gulf of Mexico and international projects in Oman, the UAE and Algeria provide further diversification, enabling the company to mitigate region-specific risks while maintaining robust production volumes.

Epsilon Energy (EPSN Quick QuoteEPSN - Free Report) , a smaller but growing player in the Permian Basin, has expanded its footprint with recent acquisitions, and well completions in Texas and New Mexico. The company’s shift toward liquid-rich production from oil offers higher-margin opportunities than its natural gas portfolio in the Marcellus Shale.

With realized oil prices of $78.71 per barrel in 2023 and new wells coming online, Epsilon is poised to see increased profitability amid strong oil prices. Its recent acquisition of undeveloped acres in Texas positions EPSN for growth in a favorable pricing environment.

As oil prices continue to rise, these companies, with their strong operational bases and diversified asset portfolios, are well-suited to capture the benefits of the current bullish market, presenting attractive opportunities for investors.