Is investing in oil stocks a good idea?
The oil and gas sector is an attractive sector for both day traders and long term investors. The sector is an active and liquid market that can also serve as a portfolio diversifier and inflation hedge.
Oil is one of the best-performing asset classes in 2022. In fact, since hitting lows of under $20 per barrel in 2020, oil has increased in value by over 1,000%. As such, now could be a great time to gain exposure to leading oil companies.
Stocks that are highly correlated to oil prices have generally been great investments so far this year. However, high correlation to crude can be a double-edged sword, as many energy investors experienced when crude prices collapsed in early 2020.
Becoming an oil and gas investor offers excellent financial benefits when the market works out in your favor. On the other hand, it also carries an equal amount of risk. Investing in oil isn't for the faint of heart, but it can be a gratifying investment opportunity when done with care and diligence.
| Oil stock | Ticker Symbol | Description |
|---|---|---|
| Enbridge | (NYSE: ENB) | A Canadian energy infrastructure giant. |
| ExxonMobil | (NYSE: XOM) | A large-scale, integrated oil supermajor. |
| Phillips 66 | (NYSE: PSX) | A leading refining company with midstream, chemical, and distribution operations. |
Is oil still a good investment in 2021 and beyond? Since 2020, crude oil prices have experienced a tremendous rebound. In February 2021, oil prices hit pre-pandemic prices of $60 a barrel. Similarly, natural gas prices, which bottomed out in April 2020, have rebounded.
| Best Value Oil and Gas Stocks | ||
|---|---|---|
| Price ($) | 12-Month Trailing P/E Ratio | |
| Surge Energy Inc. (ZPTAF) | 7.30 | 1.2 |
| Frontera Energy Corp. (FEC.TO) | CA$14.35 | 1.8 |
| Baytex Energy Corp. (BTEGF) | 4.42 | 1.9 |
Benefits of investing in oil and gas
Oil and gas stocks can produce significant capital gains from share price appreciation and attractive dividend income during periods of high oil and gas prices. As crude oil prices rise, oil companies tend to generate gushers of cash.
- Exxon Mobil (NYSE:XOM)
- Chevron (NYSE:CVX)
- Halliburton (NYSE:HAL)
- Pioneer Natural Resources (NYSE:PXD)
- Occidental Petroleum (NYSE:OXY)
- EOG Resources (NYSE:EOG)
- Devon Energy (NYSE:DVN)
There are several ways to invest in oil, and most don't include owning any physical oil yourself. You can invest in oil-related stocks, oil mutual funds and oil futures. To buy or sell oil investments, you'll need to have a brokerage account.
Will oil stocks rise?
Oil has risen 63% since the beginning of 2022 and it could rise another 61% to $200 a barrel later this year now that President Biden has announced a ban on Russian oil and natural gas imports to the U.S. That will surely send gasoline prices to all-time highs (even adjusted for inflation).
Marathon Oil (MRO -2.12%) is currently the most widely held oil stock on popular trading app Robinhood. More than 190,000 traders own shares, putting it ahead of well-known peers like energy behemoth ExxonMobil.
If you choose to buy futures or options directly in oil, you will need to trade them on a commodities exchange. The more common way to invest in oil for the average investor is to buy shares of an oil ETF. Finally, you can also invest in oil through indirect exposure by owning various oil companies.
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Big Oil: The Largest Oil and Gas Companies by Market Cap.
| Rank | 1 |
|---|---|
| Company | Saudi Aramco |
| Market Cap* (US$, billions) | $1,979 |
| Country | Saudi Arabia |
| WTI Crude | 110.5 | +4.11% |
|---|---|---|
| Brent Crude | 111.5 | +3.82% |
| Natural Gas | 7.663 | -0.98% |
| Heating Oil | 3.921 | +0.13% |
| Gasoline •3 hours | 3.958 | +4.38% |
- High-yield savings accounts.
- Short-term certificates of deposit.
- Short-term government bond funds.
- Series I bonds.
- Short-term corporate bond funds.
- S&P 500 index funds.
- Dividend stock funds.
- Value stock funds.
- NOKIA. HE.
- LAC.
- DBX.
- VIAV.
- GOOGL.
- ^GSPC.
- AAPL.
- UMC.
- Alphabet Inc. (GOOG, GOOGL)
- Medifast Inc. (MED)
- ASML Holding NV (ASML)
- EOG Resources Inc. (EOG)
- Lowe's Cos. Inc. (LOW)
- Microsoft Corp. (MSFT)
- Upstart Holdings Inc. (UPST)
- Visa Inc. (V)
XOM stock has a perfect Composite Rating of 99. Stock performance is increasingly bullish, with shares rising 39% since the start of the year. XOM's EPS Rating is a low 76, but that partly reflects a loss in 2020. Improving earnings performance gives added credibility to a bullish outlook on Exxon Mobil stock.
OIL, USO, and BNO are the best oil ETFs for Q2 2022
Oil exchange-traded funds (ETFs) offer direct access to the oil market by tracking the price of oil as a commodity. This approach is different from investing in funds that own a portfolio of oil stocks.
What is the best energy stock to buy?
- Exxon Mobil Corporation (NYSE: XOM) Exxon Mobil had a tough run in 2020, but has been in a strong recovery since November. ...
- FuelCell Energy, Inc. (NASDAQ: FCEL) ...
- Chevron Corporate (NYSE: CVX) ...
- NextEra Energy Inc (NYSE: NEE) ...
- Kinder Morgan (NYSE: KMI) ...
- ConocoPhillips (NYSE: COP)
Prices for raw materials like oil, metals and agricultural products usually increase along with inflation, so they can be a good hedge against it. Investors, however, should note that commodities can also be extremely risky, Arnott adds.
Because gold is an alternative commodity, it helps to diversify your investment portfolio and, in doing so, provides a strong hedge against inflation. Gold rates tend to remain unaffected by inflation because it retains its value more than your other investments that are backed by dollars.
An increase in oil prices usually lowers the expected rate of economic growth and increases inflation expectations over shorter horizons. Decreasing economic growth prospects, in turn, lower companies' earnings expectations, resulting in a dampening effect on stock prices.
| Characteristic | Average crude oil price in U.S. dollars per barrel |
|---|---|
| 2019 | 64.3 |
| 2018 | 71.34 |
| 2017 | 54.25 |
| 2016 | 43.67 |
Demand for oil is expected to grow as the economy bounces back from the pandemic, and now Russia's attack on Ukraine is adding to the gains. Markets see a strong possibility that western countries will sanction Russian oil, which would reduce the amount available on the international market and bring the price higher.
Oil falls, pressured by China lockdowns, reserves release
Last week, Brent dropped 1.5% while U.S. oil slid 1%. For several weeks, the benchmarks have been at their most volatile since June 2020.
The fund primarily holds front-month futures contracts on crude oil and has to roll over its futures contracts every month. 1 For example, if it holds WTI crude oil futures contracts that expire in September 2020, it must roll over its contracts and purchase those that expire in October 2020.
- Step 1: Find the index fund you want. Begin by going to the search bar at the top of the Robinhood app. ...
- Step 2: Choose how many shares you want to purchase. ...
- Step 3: Buy an index fund using money in your account.
An investor looking for a further move up in E&P share prices can either buy GUSH outright or through call options. This ETF is not suitable for buy-and-hold investors but for market practitioners with a much shorter time frame in mind.
What stock goes up when oil goes down?
Airlines: Airlines are among the biggest beneficiaries of lower oil prices because jet fuel is one of their biggest expenses. Airline stocks registered strong gains in the second half of 2014 as oil prices plunged.
Oil speculators usually make their money by betting on crude oil futures. These paper, or electronic, bets can be either bullish or bearish and involve buying or selling a futures contract for a specified quantity of oil for a price agreed upon today with a future delivery date.
So far, oil stocks are outperforming the market, with the Energy Select SPDR Fund (NYSE: XLE) up 15% since the start of the war. Nonetheless, buying oil stocks during war is proving to be an excellent hedge. See which companies are wining with higher oil prices below.
