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Oil Stocks (2022)

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Best Oil Stocks 2021 | Investing in Oil Stocks

Oil has long been an easy sell and buy for any investor. Oil truly powered the world, from air travel and commuting to heating our homes and powering factories, as well as supplying power to industries. To this day, oil and its derivatives (such as gasoline) continue to play a vital role and so are these stocks.

  • However, the outbreak of the novel corona virus may have started a chain of events that will result in the influence of oil on global markets becoming less and less over time.
  • That’s because renewable energy sources are increasingly becoming cost-competitive with oil, and the price gap is decreasing as time goes on.

Even though the situation is improving, many of today’s energy systems will still be in use for a long time. And that implies oil stocks should be included in your portfolio.

Oil equities are less volatile than trading oil on the options or futures exchanges. Most oil equities pay dividends, which provide investors with a consistent flow of income that can compensate losses if they may occur.

Top 5 best oil stocks

The best oil stocks for 2021 are:

  1. BP plc (NYSE:BP)
  2. Chevron Corporation (NYSE:CVX)
  3. ExxonMobil Corporation (NYSE:XOM)
  4. Royal Dutch Shell plc (ADR) (NYSE:RDS-A)
  5. Sunoco LP (NYSE:SUN)

1. BP plc (NYSE:BP)

The British Petroleum company is a global oil and gas giant with operations in over 70 countries. It’s also one of the largest renewable energy companies in the world. The stock has a dividend yield of 6.5% and a price-to-earnings ratio of 7.6. Read more about buying BP stocks in this guide.

2. Chevron Corporation (NYSE:CVX)

Chevron is the second-largest U.S.-based oil company and was founded in California in 1879 by John D. Rockefeller’s former partners, brothers William and Maurice Clark. Its stock has a dividend yield of 5% and a price-to-earnings ratio of 7.3. Read more about buying Chevron stocks in this guide.

3. ExxonMobil Corporation (NYSE:XOM)

Exxon Mobil is the world’s largest publicly traded company and the fourth-largest oil and gas producer in the world by average daily production. The stock has a dividend yield of 3% and a price-to-earnings ratio of 10.2.

4. Royal Dutch Shell plc (ADR) (NYSE:RDS-A)

Shell is a British–Dutch multinational oil and gas company with operations in more than 70 countries. The stock has a dividend yield of 6.3% and a price-to-earnings ratio of 10.3.

5. Sunoco LP (NYSE:SUN)

Sunoco is a publicly traded limited partnership that operates more than 5,000 convenience stores and fuel outlets across the United States. The stock has a dividend yield of 7.5% and a price-to-earnings ratio of 8.4.


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Benefits of investing in oil stocks

There are quite some advantages when it comes to investing in oil stocks.

  1. The main benefit is that you get access to the underlying commodity without needing to trade on the futures or options markets.
  2. Another benefit is that most oil companies are profitable and generate a lot of cash flow. This makes them less risky investments, as they can continue to pay their dividends even during tough times.
  3. Finally, investors in oil companies get the chance to participate in some tax breaks and other benefits.

Ways of investing in oil stocks

There are several different ways you can invest in oil and gas. An investor can decide on a passive investment or an active one. A passive investment is when the individual invests through ETFs (exchange traded funds) or ETNs (exchange traded notes).

  1. These products offer a convenient and easy way to invest in a basket of stocks.
  2. Active investments are when the investor buys shares in an oil company. This gives the investor more control over their investment, but also comes with more risk.

The most popular way to invest in oil is through ETFs

The first ETF ever was launched in 1993 and it represented oil companies, which were listed on the S&P 500 index. It had a very modest beginning, but its popularity exploded at the end of the previous decade.

  • Today, there are many different types of ETFs that can give you exposure to oil, such as Oil Services or Energy Exploration and Production.
  • These ETFs can be bought and sold just like stocks, which makes them a very convenient way to invest in the oil market.

The main disadvantage of ETFs is that they are not as liquid as stocks, which means it can be harder to sell them when you need to.

Invest in Oil with ETNs

Another way to invest in oil is through ETNs. These products are very similar to ETFs, but they are created by banks and other financial institutions. The main advantage of ETNs is that they offer investors leverage, which means you can amplify your profits (or losses). However, ETNs also come with more risk.

Buy shares in oil companies

The final way to invest in oil is through buying shares in oil companies. This gives you much more control over your investment, but it is also riskier as the individual company may not be profitable or have enough assets to cover losses.

Futures contracts for investing in oil

You may trade oil as a commodity via futures contracts in the futures market. Some investors will instead invest in an exchange-traded fund (ETF) that is linked to the price of oil or has a portfolio of firms with exposure to the oil industry.

  • The most essential thing to know about investing in oil stocks is that demand and supply are the driving force behind it. When demand for crude oil increases, as it usually does during an economic downturn, prices tend to rise. Conversely, when demand falls, so do prices.

Since the Second World War, oil demand has increased at a rapid rate. Many countries were putting up large new infrastructure networks during this time. Air travel was allowing the world to become smaller every day, and businesses were becoming international in scope. Oil was providing the energy required to power it all.

Why should you invest in oil today?

The epidemic described in the book coronavirus has had a severe impact on the oil and gas industry. This is a supply and demand business, as we previously stated. In February, when oil futures began to fall because of fears over an outbreak, it was clear that the virus was worse than we expected.

This is an important thing to know about investing in oil today

Oil has long been a reliable predictor of economic activity. When economists and institutional investors expect less demand for oil, the price of crude drops. This subsequently affects oil stocks, which as we said are typically influenced by market movement.

  • Many oil firms have declared bankruptcy as a result of the epidemic’s heavy demand restriction. And, in general, the stock prices of most oil stocks have dropped dramatically.

Furthermore, when the idea of a “V-shaped” recovery failed to come true, it added to the pressure on oil prices.

  • Despite numerous near-term challenges, oil will continue to be a worthwhile investment. Oil stocks may also be an excellent alternative for conservative investors who want exposure to the oil business without diving into commodities trading.
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The basics of oil production

Oil is a costly commodity to bring to market. It’s more than simply the cost of extracting it from the ground. Oil has to be moved, stored, and in many cases refined into gasoline or other products. Fixed costs are involved.

  1. This is a double-edged sword for the oil firms. When a barrel of oil sells for more than the sum of all these expenses, oil companies make money. In addition, the shares of fossil fuel firms will rise as well.
  2. However, this is not the case. Many of these corporations will lose money when oil sells for less than $40 per barrel. Stocks in oil firms will fall during these times.

Why buy oil stocks?

Oil stocks, on the other hand, are less sensitive to changes in the price of a barrel of crude. For example, many oil businesses will refer to a “break-even” point.

Because investors will likely sell immediately, many of the traders who use it get their profits instantly. This allows the price of crude to drop somewhat while enabling these firms to stay profitable. Because oil stocks are less risky than trading oil in the options or futures market, they’re a slightly safer alternative.

  • Many oil stocks, on the other hand, pay a dividend. Some oil firms, for example, have increased their dividends for decades before the epidemic. These businesses understand that maintaining their dividends is critical because of the price volatility involved with the commodity itself.
  • However, you should focus more on how the dividend yield compares to the firm’s free cash flow (FCF) rather than just focusing on the yield itself. In general, investors seek for firms that can pay their whole dividend out of their FCF. This payout ratio should be at least 1.1.

Different types of oil stocks

Investing in oil stocks would be easier if all oil companies were affected in the same way by rising or falling crude prices. But, in fact, the oil sector is very diverse and each sector may be affected slightly differently by rising or falling oil prices.

Upstream companies oil stock

These are the companies investors most frequently think about as an oil stock. These companies are involved in exploration and production. As the name implies, this means these companies explore locations looking for oil.

  • When they find a promising location, they drill wells to extract the oil. However as you might imagine, these companies are affected most by changes in the price of crude oil. The largest upstream company in the United States is ConocoPhillips (NYSE:COP).

Midstream companies oil stock

These companies transport crude oil through pipelines that is then stored in terminals that they own. The oil stays there until it is sent to be refined or exported. Some of these companies will even transport the newly refined company through its own pipeline networks.

  • Midstream companies are slightly more insulated from oil price fluctuations because they usually operate on long-term contracts with fixed terms. One of the leading midstream companies is Kinder Morgan (NYSE:KMI).
  • A unique aspect of EPD stock is that the company is a master limited partnership. This has tax advantages for individual shareholders but can increase the risk of larger losses.

Downstream companies oil stock

These companies refine oil into other products such as gasoline and petrochemicals. In many cases, these companies are also part of selling this refined product to consumers.

  • Two examples of downstream companies are gas station operators and refinery operators. Although these companies are not directly affected by a drop in crude prices, their stock still tend to fall when oil prices fall. One of the major downstream companies is ExxonMobil (NYSE:XOM).

Integrated companies oil stock

A few of the industries in which these firms operate include oil and gas, heavy construction, and trucking. These enterprises conduct operations in many of the aforementioned areas. When you hear the phrase “Big Oil” companies, think about companies like Shell (LON:RSDA) and Chevron (NYSE:CVX), which have big upstream and downstream

Oilfield services companies oil stock

Another way to invest in oil stocks is through the companies that provide equipment, operational support, and logistics to other oil companies, typically upstream companies. Oilfield services companies are hurt when oil prices fall because one of the first things upstream companies will do is cut their service costs.

ETFs are a different way to invest in oil stocks

The easiest and more popular way to invest in oil stocks is to buy stocks of individual companies. However, investing in exchange-traded funds (ETFs) can be a smart way to manage the risk of this sector.

  1. An oil ETF allows investors to invest in one or more of the sectors listed above at one time. For example, the SPDR Oil and Gas Exploration & Production ETF (NYSEARCA: XOP) tracks the upstream sector.

The final word about investing in oil stock

Oil stocks have been battered in 2020. But the near-term outlook for oil makes oil stocks an attractive investment opportunity. The fortunes of oil companies are impacted to a greater or lesser extend to the price of crude oil.

And that’s why it’s important for investors to understand what subsector of the oil industry the company they are interested in investing in is engaged in. However the benefit of having multiple options is that investors have many options including buying shares of ETFs that add even more diversity.


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The safest and easiest way to buy oil stocks is by using a regulated broker like eToro. You can open an account with the platform, make a deposit and buy this investment all in under 5 minutes from start to finish.

You will first want to find a licensed broker that supports oil stock. One of our favourite brokers, eToro for example, allows you to make investments into this asset from just $25 and only charges you the spread. Another option is using a regulated broker like DEGIRO or Interactive Brokers. You can open an account with these brokers and start buying or trading oil stocks in a safe and complete environment.

As with any other asset, there is an element of risk associated with buying oil stocks. Therefore, you will want to study the market and make a decision based on your financial standing and the risk you are willing to take.

You can trade stocks by first opening an account with a regulated platform and making a deposit in US dollars, EUROs or other currency. Next, search for oil stock and choose from a buy or sell order – depending on whether you think the stock asset will rise or fall in value. If you speculated on oil stocks correctly, you will have made a profit. The size of your trading profit will ultimately be determined by your stake and at what percentage your position grew.

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Freddy Agard
Freddy Agard

Freddy Agard writes daily about financial products and specializes particularly in the equity markets. He is happy to tell you more and enjoys reducing complex material to manageable and understandable information. Questions? Leave a comment at the bottom of the page!

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