A Large Oil Supply Draw Could Mean Upside in These 3 Energy Names

Connecting ideas to economic data and price action is often one of the best ways for investors to identify a winning trade for their portfolios, and today’s data points to a single area of the stock market. Looking into the energy sector, there is one widely followed indicator rooted in the deepest supply-demand market dynamics that gives investors the insights they need to move forward with confidence.

The overall level of oil inventory for the United States is released once a week, and changes in the supply level can trigger significant price movements for the commodity. This provides investors with a sound opinion on current economic and business activity and its potential direction.

This latest reading for oil supply has given investors much to think about, leading them to one conclusion.

Oil inventory has declined the most since December 2024, meaning two things are apparent today. First, there is no need to keep as much oil on hand due to the economic and trade activity slowdowns caused by trade tariffs, and second, any whiff of new demand might create bottlenecks and price spikes.

This is why considering stocks like Transocean Ltd. (NYSE: RIG), Occidental Petroleum Co. (NYSE: OXY), and Helmerich & Payne Inc. (NYSE: HP) can be a winning strategy.

Transocean Stock: First in Line, First to Rally

Knowing that the setup in oil and oil stocks significantly favors buyers, considering where supply has tightened and where the risk-to-reward ratio is set, it would make sense to start looking at the smaller names at the top of the industry’s value chain.

This means drilling equipment makers and providers, where Transocean comes into play.

By trading at only 44% of its 52-week high price, Transocean stock has pretty much priced in all bad news that could come its way, especially today’s low oil prices. That also means that when oil inevitably increases due to this tight supply, major producers will have to look to Transocean to equip themselves with the necessary drilling and transportation equipment.

That might be a reason why Gregory Lewis from BTIG Research decided to reiterate his Buy rating for the company as of early May 2025, this time placing a valuation target of up to $5 per share on it as well. From where it has fallen to today, Transocean would have to nearly double in order to meet this forecast.

Others on Wall Street think Transocean could report up to $0.06 in earnings per share (EPS), a significant jump from today’s reported net loss of $0.10 per share, giving the company room to justify some of this aggressive upside projection made by analysts.

Helmerich & Payne Draws New Money In

As of early May 2025, it wasn’t only a valuation boost that took over the drilling industry, as seen in Transocean, but new institutional money also found a new place to be in Helmerich & Payne stock. Those from the Vanguard Group justified a stake worth up to $286.2 million then, owning as much as 11% of the entire company.

This decision makes sense on a fundamental level, as the company’s contract revenue is directly tied to the price of oil. Consequently, financial expansion will likely result in oil prices rising due to the tightening supply and potential return of demand, which will inevitably subside with trade tariff fears.

In terms of risk-to-reward, investors can note that the drilling industry now trades at an average of 5.4 times its earnings, compared to a price-to-earnings (P/E) ratio of 47.8 times for the rest of the energy sector. This wide gap will eventually need to be closed when the drillers' profit centers emerge with higher oil prices.

This is why Wall Street analysts also feel confident in forecasting up to $0.76 in EPS for the second quarter of 2025, a significant increase from today’s $0.02 EPS, providing another reason for investors to consider this space as a whole.

Buffett’s Choice: Occidental Petroleum

Before announcing his retirement in December 2025, Warren Buffett decided to take one last swing at a company closely tied to the upside potential now in energy names. That stock was Occidental Petroleum, and other market participants have caught onto this fact.

Over the past month alone, Occidental Petroleum’s short interest declined by 4.5%, indicating that investors are showing signs of bearish capitulation, especially as they now understand that the odds are severely stacked in favor of buyers. While bears reassessed their odds, other institutions stepped on the gas instead.

During the most recent quarter, up to $1.1 billion worth of institutional buying went into Occidental Petroleum stock, with an additional $1.7 billion stacked up for the previous quarter. For all intents and purposes, this is a sign of confidence in this stock and the overall energy sector, especially now that the data has made it clear bottlenecks could form.

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The article "A Large Oil Supply Draw Could Mean Upside in These 3 Energy Names" first appeared on MarketBeat.