Where to Invest in Oil Stocks in October 2023 The Motley Fool Canada
Mutual funds and exchange-traded funds (ETFs) are baskets of assets built around an organizing theme. Investors get exposure to the crude oil market, when prices rise, but are paid in the interim. There are plenty of generous dividend payers on this list, and Diamondback is worth a look for its income potential.
The easiest way to invest in oil is to directly invest in the companies that produce it. By investing in shares of publicly traded oil companies such as Exxon Mobil or Chevron, you can sink your money into the profits and losses alvexo forex broker of this industry. With prices at the gas pump continuing to climb, you may be thinking it’s a good time to invest in oil stocks. Before you call your broker or fire up your E-Trade account, here’s what you need to know.
Some independent refining companies will only operate refining complexes. Others, meanwhile, have some vertical integration but don’t go all the way upstream. Unlike integrated energy companies, refiners like VLO are more reliant on the “spread” between unrefined oil and higher-valued refined products. Interestingly fxcm canada review enough, this means that the rollback in energy prices from prior highs a year or two ago has actually been quite good for VLO recently, thanks to lower input costs and premium pricing on refined goods. Excluding a one-time special dividend in 2022, CNQ’s distributions have nearly tripled since late 2018.
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Even so, that doesn’t mean there are few opportunities in the oil patch. Here’s a closer look at some of the top oil stocks and factors to consider before buying oil stocks. You don’t need to move to Texas and buy a well to start investing in oil. Oil stocks and mutual funds make it easy for beginners to invest in oil and oil-related investments — without having to relocate to the Lone Star State.
Oil stocks were some of the few shining stars during the bear market of 2022. Inflation took its toll on consumer spending and business sentiment, but it did wonders for the price of crude oil. Aided by Russia’s invasion of Ukraine, oil stocks saw robust gains even as the S&P 500 index lost approximately 20% on the year. The company launched an industry-first, fixed-plus-variable dividend framework in 2021. It pays out as much as 50% of its excess cash flow each quarter via variable dividend payments after funding its fixed base dividend and capital expenses. Devon uses the rest of its excess cash to strengthen its balance sheet and repurchase shares.
Companies with quarterly EPS or revenue growth of more than 1,000% were excluded as outliers. “Oil” goes beyond what you put in your car, and understanding this complex market takes more than waiting to fill your tank until your local gas station’s prices dip. Just like any investment, supply and demand play a role in how much oil is worth. For example, the Russian invasion of Ukraine in February 2022 caused oil prices to jump over concerns about global supply.
A global oversupply of crude oil and natural gas, combined with fluctuations in demand, have caused the energy sector to significantly underperform the broader stock market in recent years. Companies involved in the production, transportation, and refining of crude oil are commonly referred to as oil stocks. Overall, investing in oil stocks can be a lucrative opportunity, but it is important to proceed with caution and a well-informed strategy.
- Enbridge operates one of the biggest oil pipeline systems in the world.
- In fact, at one point, the futures contract for a barrel of oil turned negative.
- I will cover the pros and cons of investing in oil, and what the next steps are if you want to go down this road.
- Investors get exposure to the crude oil market, when prices rise, but are paid in the interim.
When a barrel of oil sells for more than the sum of all these costs, oil companies turn a profit. In this article, we’ll review why you should consider investing in oil; we’ll review your investment options, and more directly the different types of oil companies that you can invest in. With oil prices rising, ConocoPhillips could return more cash to shareholders next year. It’s in an even better position to cash in on higher oil prices after recently exercising its right to buy out its partner’s 50% interest in their Surmont joint venture in Canada for $3 billion. The company returned $557 million of the $742 million in free cash flow it generated during the second quarter to shareholders.
Top oil stocks to buy in 2023
Speculators trying to profit from short-term price changes are less likely to take delivery of the underlying commodity at a future contract’s expiration. If you’re looking for more direct exposure to oil, you can consider looking to the commodities market, where there are products such as oil futures for sale. Jones, however, says such investments can be risky for retail investors. Companies that look and drill for oil are among the most volatile stocks in the oil space, Jones says, and their prices are very responsive to short-term trends.
However, if energy investors should have learned anything over the past decade, it’s that market conditions can change quickly. For this reason, most investors considering oil stocks would do well to focus on high-quality, larger integrated oil companies such as the ones described in this article. However, the benefit of having multiple options is that investors have many options including buying shares of ETFs that add even more diversity. And because oil and gas companies are taking an increased interest in renewable energy many of the most profitable oil stocks today will continue to be good investments in the future.
The drawdown of available shares has helped improve operating metrics for Diamondback that are measured on a per-share basis. The move also is part of a long-term effort to support prices thanks to reduced supply of tradable shares. This structural focus is a sign that FANG is an oil stock that is looking beyond short-term pricing trends in oil. Spun off from ConocoPhillips in the middle of 2012, Phillips 66 began paying dividends of 20 cents per share per quarter. The world’s largest oil-exporting nations include members of OPEC (Organization of the Petroleum Exporting Countries), a cartel that works to coordinate members’ oil policies.
Coterra is an independent oil and gas company focused on hydraulic fracturing of shale to extract fossil fuels, a process known as fracking. It has operations across the U.S., from the Marcellus Shale region that spans the northeast U.S. around Pennsylvania to the Permian Basin of New Mexico and west Texas and the Anadarko Basin around Oklahoma. Energy Transfer is a midstream energy stock that owns and operates roughly 120,000 miles of pipelines across 41 states. This business model isn’t quite as high-margin as energy exploration, where firms can increase drilling when prices are high to provide a big boost to profitability.
How Can You Trade Crude Oil?
All investments involve the risk of loss and the past performance of a security or a financial product does not guarantee future results or returns. You should consult your legal, tax, or financial advisors before making any financial decisions. This material is not intended as a recommendation, offer, or solicitation to purchase or sell securities, open a brokerage account, or engage in any investment strategy. Pioneer Natural Resources also has a well-defined capital return program. It set a framework of returning at least 75% of its free cash flow to investors, and the bedrock of that strategy is a sustainable and growing base dividend.
types of oil stocks
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SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
But, in fact, the oil sector is very diverse and each sector may be affected slightly differently by rising or falling oil prices. Oil refineries take raw crude oil and transform it into higher-value products, making money on the difference between the prices at which they buy oil and sell refined products. This process enables these companies to generate lots of cash, review evidence-based technical analysis the bulk of which they use to either grow their operations or reward shareholders through dividends and buybacks. Because refiners consume oil in their plants, refining companies tend to benefit when oil prices fall. That often makes a refining stock an excellent complimentary holding for investors who also have shares of an upstream oil producer in their portfolios.
It pays a base quarterly dividend it can sustain at lower oil prices, and on top of that, it adds up to half its excess free cash in variable dividends. For most investors, this is by far the best way to invest in oil. Funds should make up the bulk of an average retail investor’s portfolio given their potential for overall stability and long-term growth. Investing in a fund built around either oil prices or the oil industry is a good way for investors to gain exposure to this sector without the risks involved with more speculative assets. Exchange-traded funds are like mutual funds that stick to a prescribed group of investments and are traded on an exchange like stocks. You have a position in each of the companies whose stock makes up the fund, which gives you less volatility than if you own individual stocks.