Best Oil Stocks Right Now

Oil has made headlines during this coronavirus crisis, although not for reasons investors want to see. In addition to issues caused by international events, especially those that impede the safe transport of natural resources. Even in a perfect work, this sector can be quite volatile as supply and demand are constantly shifting. That's why it's important to learn all you can about oil assets, how they can impact your portfolio and the manner in which petroleum maintains hold on the financial sector.

Despite any problems that might arise, remember that the oil market tends to be a safe place to hold assets for long periods of time. There is quite a lot of growth potential in this sector, and you should keep your eye on the oil industry even as renewable energy becomes a powerful force worldwide.

Quick Look at the Best Oil Stocks:

• Texas Pacific Land Trust
• TotalEnergies
• EOG Resources
• Baker Hughs
• Africa Oil Corp
• Devon Energy
• Enbridge
• Enterprise Products Partners

Overview: Oil Stocks

Oil companies like ExxonMobil and BP are some of the oldest and largest publicly-traded firms in the petroleum industry, but there are many more with which you must contend as they handle crude oil and a range of petroleum products.

Despite environmental headwinds, the oil and gas industry is still a multi-trillion dollar business composed of several different subsectors and business models, despite popular assumptions about both the price of oil and the function of the industry. Oil companies are split into 3 distinct groups based on where they function in the pipeline. The 3 different groups are:

• Upstream: Companies in the upstream subsector are involved in finding oil and pulling it out of the earth. Upstream companies search the globe for new oil reservoirs and assemble drill sites for extraction. Yes, the oil they retrieve could become fuel or some other petroleum product, but they generally make money from retrieval via drilling on an oil rig or fracking in gas field—not sales. Upstream companies often face significant financial hurdles since drilling and mining equipment is cumbersome and expensive. Occidental Petroleum (NYSE: OXY) and Whiting Petroleum (NYSE: WLL) are upstream firms that recently suffered severe debt issues.

• Midstream: Midstream companies are transportation and storage firms. At this part of the process, the raw product needs to be treated, stored and shipped to suppliers. Companies that run pipelines or own oil tankers are often referred to as midstream since they bridge the gap between the drillers and the companies refining and selling the product to the public. For example, a midstream firm brings gas products to the gas company or oil products to the refinery, etc.

• Downstream: Finally, we have the refiners and suppliers. Downstream companies remove imperfections from the raw product and turn it into engine oil, gasoline, heating oil, etc. Many downstream companies also have operations in the midstream sector as well, allowing them to hold the inventory they ship. In some cases, crude oil production can lead to a transportation network and retail system.

Many of the largest oil companies like ExxonMobil are known as integrated oil producers since they have branches involved in upstream, midstream and downstream operations, meaning that their stock price can be impacted by OPEC restrictions, current events everywhere from Oklahoma to South America and the Middle East and/or the rise and decline of demand (for example, the summer travel season in America.) When buying oil companies, be sure to understand what sector of the industry they reside in. Plus, the sector of the industry where the company works changes the way they operate and adjust to market shifts. For example, a smaller downstream company might have more room to adjust to a shifting market where a larger midstream company might not. Carefully considering your options and monitoring their performance is the best way to keep your portfolio in good condition.

Best Online Brokers for Oil Stocks

Before investing in any oil stocks, you need to find the right brokerage account for your investments, even if you have your finger on the pulse of crude oil prices. Most major online discount brokers have access to the oil company shares you’re looking for (along with other firms in the energy sector), but beware of fees and commissions. Almost all brokers are commission-free for stocks and ETFs now, and most require no minimums to open an account. Paying a flat fee on every trade is a thing of the past — if your current broker isn’t commission-free, consider finding a new one.

Features to Look for in Oil Stocks

• Manageable debt load: Oil companies are usually burdened with large amounts of debt, especially upstream companies that require expensive equipment to operate. Excessive leverage can easily cause oil companies to falter, but debt is a way of life for oil producers, so make sure the companies you buy can manage theirs. Yes, global demand is high, but there’s no guarantee that a plentiful oil well and an assumption of demand is enough to make a profitable business.

• Stable dividend: Oil stocks are known for their fat dividends and investors have enjoyed steady income from the industry for years. However, with oil stocks in the bargain bin and no end in sight to the headwinds pressuring the industry, dividends are on the chopping block. Energy firms like Williams Companies (NYSE: WMB) currently sport high dividends, but that does not mean those dividends will last forever. Don’t chase high dividends when the industry is facing uncertainty, especially as infrastructure changes, the energy market diversifies and global oil production can change on a dime.

• Sufficient cash reserves: Cash is king, especially when an unrelated crisis has driven demand into the ground. The energy sector is going to see some ugliness in the next few months as cash flow dries up, so companies with extra cash to deploy will be better positioned when the crisis subsides. If these businesses want to remain in the supply chain, they need to be ready for capital expenditure projects (CAPEX), changing climate policy and regulations, etc.

Considerations When Buying Oil Assets

Aside from “what to look for in an oil asset”, you need to know what to consider as you invest in the broader oil industry. Be on the lookout for:

• Geopolitical issues: The greatest risk in the petroleum industry is geopolitical unrest. Energy economics shift with the tide of protests, regime changes and more. A despot could take over an oil-producing nation, take a significant role in OPEC, increase or decrease oil product and gas production and much more. Protests can tank a cheap oil stock when a refinery is shut down, and investors could become wary when they realize current events are cutting into their bottom line.
• Market dynamics: The market is shifting every day, and you need to be aware of what the market wants, likes and needs. If you don’t know what the market thinks, do your research with Benzinga so that you can get a better idea of what’s happening out there.
• Health and safety: Health and safety concerns can slow down production, cause greater regulation and scrutiny and impact oil prices.
• Environmental considerations: The world will eventually run out of oil and most nations are under pressure to diversify their energy assets, meaning that oil prices and assets could suffer, depending on how flexible and innovative they are. If these companies don’t address climate change, they could suffer in the long-term.

Trading Oil Stocks During a Price War

There’s no sugarcoating this — oil can be a tough investment. Prices keep fluctuate often and there's pressure on the industry from both short-term and long-term headwinds. Renewable energy was gaining traction before the crisis hit and while cheap oil may boost demand once the world gets back to normal, it becomes a tougher and tougher industry to navigate, especially for capital intensive operations in the Upstream sector. 

However, it's hard to resist buying quality companies when prices reach historic lows like these. The price of crude oil won’t stay low or high forever, but you can be sure that the price of a barrel is trending up over the long term. Nation worldwide don’t want to cut into their emergency reserves, and you cannot expect a massive dividend yield all the time when the market fluctuates as it does. Oil is a finicky industry - be sure to do your homework before investing in a sector facing unprecedented uncertainty.

Frequently Asked Questions

Continue reading: BEST OIL PENNY STOCKS