As oil hits its highest level in six years, here's how Cramer and other pros are playing it

Published Tue, Jul 6 202110:08 AM EDTUpdated Tue, Jul 6 202110:49 AM EDT

Oil jumped to its highest level in more than six years on Tuesday, leading various pros — including CNBC's Jim Cramer and Wall Street analysts — to look for ways investors can take advantage of crude's run. West Texas Intermediate crude futures traded as high as $76.98 per barrel — a price not seen since November 2014 — after a meeting between OPEC and its allies over production policy for August and beyond ended without an agreement. Brent rose to its highest level since 2018. By the opening bell on Wall Street, however, both contracts had given back their gains and traded in the red. Still, the dip does little to dent oil's blistering rally this year, which has seen WTI gain more than 50%. And analysts believe that growing demand coupled with supply constraints will continue to push oil, and by extension energy stocks, higher. Analysts' picks Bank of America believes Brent could hit $100 per barrel by summer 2022, and the firm doesn't hold an underperform rating on a single stock across its oil coverage universe. Looking forward, the firm said investors should focus on companies that have the most exposure to the jump in oil prices due to minimal hedging exposure, including Occidental and APA . Due to the price volatility across commodities, energy companies typically seek to limit exposure to price swings in part by buying and selling futures contracts. While protecting companies from a drop in prices, this also means that upside from oil's recent surge can be limited. "Looking forward to 2022, hedging exposure is light across our broader sector coverage so that year over year we expect those stocks that have lagged so far in 2021 to show greatest relative improvement in earnings and cashflow," BofA analysts led by Doug Leggate wrote in a recent note to clients. He also pointed to Exxon and Hess as top ideas across the energy sector. Evercore ISI is similarly bullish on the outlook for oil companies. The firm recently raised its price target on every single stock under its integrated oil and exploration and production company universe. "Upstream is back!" the firm declared in a note to clients. "After the better part of three years of cost reductions, portfolio high-grading and rethinking the value proposition, E & Ps are well positioned to capture the upside from commodity price near term." Evercore's Stephen Richardson added that with WTI above $70 per barrel, "almost everything works" with companies able to sustain capital expenditures, debt reduction and shareholder returns. He pointed to Diamondback Energy as one of the names most exposed to the upswing in oil prices, and called the company — which he rates at outperform — a top idea within the exploration and production sector. Shares of the Texas-based company have more than doubled this year. Richardson also named EOG Resources and Devon Energy as top ideas. "The E & Ps are more of a direct play on crude price than the Big Oils with greater flexibility to adapt to the environment (for better or worse) and consensus forecasts have been playing catch-up for the better part of the year as the outlook for commodity price & cash flows has slowly drifted higher," the firm said. Cramer's pick CNBC's Jim Cramer is also bullish on Devon, noting that the company was the second-best performer in the S & P 500 during the second quarter. Specifically, he likes how the company has focused on paying down debt. "Can oil go to $100? Yes. Would you play it with a major? No. You would play it with Devon," he said Tuesday on "Squawk on the Street." The S & P 500 energy sector is coming off its best first half of the year on record, and it's by far the top-performing S & P group for 2021, rallying more than 40%. When looking at U.S. upstream companies, Goldman Sachs said it favors buy-rated ConocoPhillips compared with EOG Resources, which it rates at neutral. The firm's bull case for Conoco centers on the company's shareholder returns strategy, as well as its acquisition of Concho Resources as accretive to returns and free cash flow. —CNBC's Michael Bloom contributed reporting.

Paul Putnam, 53, a rancher and independent contract pumper walks past a pump jack in Loving County, Texas, November 25, 2019.

Angus Mordant | Reuters