Why Marathon Petroleum And Phillips 66 Are Top Oil Stock Picks

For the first time in many years, the Energy Select Sector SPDR Fund XLE is leaving the SPDR S&P 500 ETF Trust SPY in the dust as many oil and gas stocks have come roaring back to life.

On Thursday, Bank of America analyst Doug Leggate released his quarterly deep dive into oil refiner stocks, and he sees plenty of upside remaining for top names in the space.

After recently speaking with oil industry executives at Bank of America’s refining conference, Leggate said expectations for a widespread recovery in gasoline demand are finally becoming tangible. The latest EIA data indicates gasoline demand is in-line with pandemic highs of last summer during a period of the year in which demand is typically down about 7% from the previous summer’s levels.

“Put simply, before any incremental demand recovery, summer 2021 looks set for a potentially significant rebound year over year,” Leggate said.

How To Play It: Looking ahead, Leggate said refiners have a line of sight for margins to recover to at least mid-cycle levels at some point.

In the meantime, his top two stock picks among refiners are Marathon Petroleum Corp MPC and Phillips 66 PSX. Leggate said both stocks have valuation upside and both pay investors roughly a 4% dividend while they wait. WTI crude oil prices have recently rebounded to as high as $67.98 per barrel, their highest level since October 2018.

Benzinga’s Take: Oil and gas exploration and production stocks have led the charge so far in 2021, with the SPDR S&P Oil & Gas Exploration & Production ETF XOP already up an incredible 55.2% year-to-date.

In February, Bank of America said it expects Brent crude oil prices to hit $70 in the second quarter of 2021 and average $60 for the full year.

(Photo: Marathon Petroleum Corp.)