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Why Hess Stock Soared Nearly 14% in June

Matthew DiLallo, The Motley Fool

What happened

Shares of Hess (NYSE: HES) jumped 13.8% in June, according to data provided by S&P Global Market Intelligence. The sole fuel for Hess' rally was the price of oil, which rebounded somewhat following a plunge into bear market territory.

So what

Crude prices tumbled in May, crushing oil stocks like Hess. While oil continued falling through the early part of June, it bounced back toward the end of the month, closing about 8.8% higher than it was at the end of May (though still more than 8% below where it began May). The main factor fueling oil's rebound was a change in market sentiment. After a period when investors' focus was on the growing concern that demand was weakening, the market's attention shifted to the supply picture after Iran allegedly attacked some oil tankers in the Persian Gulf. That sparked concerns that the country might attempt to shut down tanker traffic from the region, which would significantly disrupt global oil supplies.

An oil pump with the sun setting in the background.

Image source: Getty Images.

The rebound in oil prices sparked by those fears particularly helped boost Hess' stock, since its production has the highest weighting of oil and other liquids in its peer group at more than 70% of its total. That number should rise in the coming years as Hess' two oil growth engines kick into high gear. The company expects its oil production to grow at a 14% compound annual rate through 2025, which should expand its cash flow at an even faster 20% over that time frame, assuming oil prices cooperate.

Now what

Hess has the highest exposure to oil prices in its peer group. That's why it's no surprise that the company's stock price rose and fell in sync with crude in recent months. While the company's focus on growing its oil output will only increase that exposure, Hess is also on track to produce a gusher of free cash flow in the coming years. Because of that, its shares could have a lot more upside, which is why it remains one of the more compelling oil stocks to consider buying for the long haul.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.