5 Best Oil Stocks Right Now • Updated Daily • Benzinga

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Oil has been in the headlines during this coronavirus crisis, but not for reasons investors want to see. In addition to a lack of demand due to virus shutdowns, Russia and Saudi Arabia entered a price war that sent the price of WTI crude futures below $12. Yes, the pizza you ordered for dinner last Friday cost more than a barrel of oil at the time of this writing.

But, despite the crises driving prices down, both are hopefully temporary disruptions. The lockdowns won’t last forever and travel demand will eventually return. The price war between Saudi Arabia and Russia could be vicious now, but neither side wants to see oil prices continue to fall as they have so far in 2020.

If you’re betting on an oil rebound, many underdog stocks are currently trading at a discount. Here are a few to watch out for.

Overview: Oil Inventories

Oil companies like ExxonMobil and BP are among the oldest and largest publicly traded companies in the market. Despite environmental headwinds, the oil and gas industry is still a multi-trillion dollar business comprised of several different sub-sectors and business models. Oil companies are divided into 3 distinct groups based on their position in the pipeline. The 3 different groups are:

  • Upstream: Companies in the upstream subsector are involved in the search for oil and its extraction from the earth. Upstream companies search the world for new oil reservoirs and assemble drilling sites for extraction. Upstream companies often face significant financial hurdles because drilling and mining equipment is bulky and expensive. Occidental Petroleum (NYSE: OXY) and Whiting Petroleum (NYSE: WLL) are upstream companies that have recently suffered from serious debt problems.
  • Half-way : Intermediary companies are transport and storage companies. At this point in the process, the raw product must be processed, stored and shipped to suppliers. Companies that operate pipelines or own tankers are often referred to as middlemen because they bridge the gap between the drillers and the companies that refine and sell the product to the public.
  • Downstream: Finally, we have the refiners and the suppliers. Downstream companies remove imperfections from the raw product and process it into motor oil, gasoline, heating oil, etc. Many downstream companies are also active in the midstream sector.

Many of the largest oil companies like ExxonMobil are known as integrated oil producers because they have branches involved in upstream, midstream and downstream operations. When buying oil companies, make sure you understand what industry sector they reside in. When prices are as low as they are now, exploration and drilling companies could struggle under heavy debt.

Best Online Brokers for Oil Stocks

Before investing in oil stocks, you need to find the right brokerage account for your investments. Most major online discount brokers have access to the oil company stocks you are looking for for, but beware of fees and commissions. Almost all brokers are now commission-free for stocks and ETFs, and most require no minimum to open an account. Paying flat fees 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 debts, especially upstream companies that require expensive equipment to operate. Excessive leverage has already bankrupted a few oil companies so far in 2020 and more will follow if prices continue to crash. Debt is a way of life for oil producers, so make sure the companies you buy can handle theirs.
  • Stable dividend: Oil stocks are known for their big dividends, and investors have enjoyed steady income from the industry for years. However, with oil stocks in the trash and no end in sight to the headwinds pressuring the industry, the dividends are on the chopping block. Energy companies like Williams Companies (NYSE: WMB) currently sport an 8.8% dividend that is expected to be reduced in the near future. Don’t chase high dividends when the industry faces such uncertainty.
  • Sufficient cash reserves: Cash is king, especially when an unrelated crisis has caused demand to plummet. The energy sector will see some ugliness over the next few months as cash flow dries up, so companies with extra cash to deploy will be better positioned when the crisis subsides.

Trading Oil Stocks During a Price War

There is no sugar coating – oil is a tough trade right now. Prices continue to fall and the industry is under both short and long term pressure. On April 20, the price of WTI futures fell 40% overnight alone. Renewables were gaining ground before the crisis hit and while cheap oil may boost demand once the world returns to normal, it is becoming an increasingly difficult industry to navigate, especially for operations. capital-intensive in the upstream sector.

However, it’s hard to resist buying quality companies when prices hit historic lows like these. Buying oil inventories may seem like a bad idea right now, but if demand returns sooner than expected, OPEC’s supply restraints could be effective. Oil won’t stay below $20 a barrel forever and many investors will want to buy now when reputable companies are trading at such deep discounts. Oil is a temperamental industry – make sure you do your homework before investing in a sector facing unprecedented uncertainty.



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