Unlike more traditional methods of oil exploration and production, it is more costly to get usable fuel out of oil sands, which are a mixture of sand, clay, water and a dense form of petroleum. This means that when oil prices dip, the margins at companies like Suncor are hit much harder as a result. There are several ways to invest in oil, and most don’t include owning any physical oil yourself.
- Yes, buying oil stocks may be good today, but what about 20 years from now?
- Devon’s stock price is currently more than 40% below its 52-week high despite the recent surge in crude prices.
- Specifically, CTRA was paying a fixed dividend of 12.5 cents per share at the end of 2021 before increasing that to 15 cents per share quarterly across 2022 and now 20 cents quarterly this year.
- At its peak, Willow is expected to produce a sum of oil equivalent to nearly 40% of the state’s current oil production, Freeman writes.
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Know when to invest in oil stocks
The value of T-bills fluctuate and investors may receive more or less than their original investments if sold prior to maturity. T-bills are subject to price change and availability – yield is subject to change. Investments in T-bills involve a variety of risks, including credit risk, interest rate risk, and liquidity risk. As a general rule, the price of a T-bills moves inversely to changes in interest rates.
- As a senior writer at AOL’s DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities.
- Additionally, I believe oilfield service vendors stand to benefit massively in the back half of the oil bull market.
- You can invest in the common stock of an oil and gas company of any type — E&P, midstream, downstream or integrated.
Meanwhile, it imports other types of oil to maximize its production based on refining capacity. This article gives a broad overview of the forces driving the oil market and how to have a financial stake in oil in your investment portfolio. The oil market can be very confusing to both the professional and individual investor, with large price fluctuations sometimes occurring on a daily basis. Finally, you can also invest in oil through indirect exposure by owning various oil companies. The more common way to invest in oil for the average investor is to buy shares of an oil ETF. U.S. and overseas crude refiners are the sole focus of the VanEck Vectors Oil Refiners ETF (CRAK).
SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
CNQ has outperformed the market handily over the last five years, delivering total returns of more than 80%. It’s a good idea to read up on the stocks you want to buy before you dive in. Industry news coverage, analyst reports and company financial statements can help you get more comfortable with your decision. And note that it can be especially risky to purchase volatile investments using high-interest debt such as credit cards. If your investments decline in value, you’ll still owe interest on the price you paid for them — deepening your losses. Nonetheless, their prospects can vary considerably because of the price of oil.
Related oil stocks topics
In a recession, oil stocks may decline in value due to reduced demand for oil and a decrease in economic activity. During times of war, oil stocks may be impacted by geopolitical tensions, supply disruptions, and changes in government policies related to the oil industry. These factors may result in fluctuations in the price of oil and affect the performance of oil companies, potentially leading to increased volatility in oil stocks. Oil industry bulls, or advocates, point to the benefits of these stocks. Finally, bulls also argue that low valuations witnessed in the recent economic downturn could offer opportunities for investors to buy in at a discount.
Over half of that return was its base dividend, while the variable payout was around another quarter of the return. Devon’s stock price is currently more what are the software development models than 40% below its 52-week high despite the recent surge in crude prices. That makes buybacks a very attractive use of its excess free cash flow.
That enables them to return 40% to 60% of their free cash flow to investors via dividends and share repurchases. Oil companies, on the other hand, need to reinvest a larger portion of their cash flow into sustaining their production by drilling new wells, especially when oil prices are lower. That leaves them with less money not only for drilling new wells that grow production but also for shareholder-friendly activities like dividends and buybacks. Oil stocks are a popular investment option for those seeking to diversify their portfolio and potentially earn a return on investment. As one of the most important commodities in the world, oil plays a vital role in the global economy, making oil stocks an attractive investment opportunity.
As of mid-2022, there are estimated to be around 1.43 trillion barrels of oil left to be drilled. At current rates of consumption, that is estimated to last just 45 more years. In OPEC, most countries do not have the ability to pump out much more oil. Saudi Arabia, the one exception, keeps an estimated spare capacity of 1.5 to 2 million barrels of oil per day. Another advantage of commodity ETNs is that capital gains taxes are deferred until the position is sold, while gains on commodity ETFs are taxed annually even if they remain in the portfolio. You could buy crude outright in the spot market, if you had deep pockets and sufficient storage facilities to accommodate a shipment of 600,000 barrels from a tanker or even 25,000 barrels a month via pipeline.
If you don’t mind a bit of variability in dividends, this high-yield energy stock could be worth a look. The coronavirus pandemic caused global oil demand to crash while oil producers slashed their output to ride out the downturn. But, as travel and commerce recovered, it led to the demand for oil products recovering faster than production could respond. Investors today are weighing continued strong economic activity with the threat of a Federal Reserve-induced slowdown to fight inflation. After being extracted from the ground, crude oil is processed and used in many different petroleum products (the term “petroleum” is often used interchangeably with “oil”).
Conoco typically sets its return-of-capital plan annually, but it will adjust its target based on market conditions. For example, it boosted its 2022 plan by $5 billion in August of that year, pushing its total to $15 billion. Get this delivered to your inbox, and more info about our products and services. He’s also written for Esquire magazine’s Dubious Achievements Awards. Although the company posted “slightly disappointing” fourth-quarter results by its own historical standards, Freeman stresses that EOG will have some of the largest production growth in his coverage area.
Energy Transfer LP (ET)
Supply and demand imbalances can cause huge fluctuations in oil prices. We saw that in early 2022 after Russia’s invasion of Ukraine, which sent crude etoro prices soaring into the triple digits for the first time in years. Both sales and earnings are critical factors in the success of a company.
That said, fluctuations in demand can also cause swings in oil prices. Suncor is focusing on improving its breakeven levels and lowering its cost structure. Suncor continues to have a strong balance sheet and a unique integrated business that should fare well in many operating environments. Suncor’s stock price is trading at very depressed valuations of 10 times earnings, four times cash flow, and 1.5 times book value, despite generating high returns and margins. First, some mutual funds and ETFs are indexed to the price of oil or natural gas or one of their derivatives.
In the spring of 2020, oil prices collapsed amid the economic slowdown. OPEC and its allies agreed to historic production cuts to stabilize prices, but they dropped to 20-year lows. In 2022, when Russia invaded Ukraine, the disruption to oil markets, economic sanctions, and rising inflation led to oil trading above $125 per barrel. Generally speaking, it is relatively risky to buy interactive brokers forex review individual stocks rather than index funds that provide broader exposure to the market. If you believe oil companies will do well but aren’t sure which ones to pick, you could also consider investing in an exchange-traded fund linked to oil. Overall, though, it’s important to remember that oil stocks, like the companies they represent, will likely do better if oil prices are high.
Some Final Thoughts About Investing in Oil Stocks
Jeff Reeves is a veteran financial journalist with extensive capital markets experience, and has written about Wall Street since 2008. His commentary has appeared in numerous respected outlets including CNBC, the Fox Business Network, USA Today, MarketWatch, US News, Kiplinger, and CNN Money, among others. Please note that the stocks above were selected by an experienced financial analyst, but they may not be right for your portfolio.
The futures market is the most direct way to trade crude oil, but it’s not practical for most investors. These industrial complexes process raw crude oil into a variety of higher-value refined petroleum products. These products include liquid fuels (gasoline, diesel, kerosene, jet fuel, heating oil, and fuel oil) and other products (asphalt, tar, paraffin wax, and lubricating oil). Because of that, it’s best to focus on companies built to weather the sector’s inevitable downturns. That means focusing on those with relative immunity to price fluctuations, such as E&Ps with ultra-low production costs and integrated oil giants. Another way to invest in the oil patch is to focus on using it to generate dividend income.