Stocks & Oil
Oil companies offer a range of stocks to investors, attracting speculators and investors alike. Big oil stocks provide exposure to a variety of energy sources, and sector diversification, as the energy markets go through dramatic changes. Before deciding which oil company stock is best for investment, it’s essential to understand the dynamics of the sector, knowing both the risks and rewards of investing.
Rising Oil Prices, Increased Investment & Risk
The current market is dictated by rising oil prices, meaning that there will be increased investment in oil companies as oil production continues to increase worldwide. With higher oil prices often come higher investment in oil companies, meaning higher risk. Because of this, it’s important to understand the underlying risks of the stocks you’re looking to invest in.
Oil Market Cycles & Investment Risk
Oil markets, like other commodities markets, experience cycles of highs and lows, meaning that there are times when oil prices rise, and times when they fall. Investors need to be aware of these cycles, in order to protect their investments from sudden downturns in the oil industry.
Depth Of Exploration & Production Caps
When considering which oil company to invest in, one should consider the level of exploration and production the oil company’s operations are engaged in. Many oil companies are limited in scope and production capacity, meaning that any sudden shifts in the market could leave them vulnerable to potential losses.
In addition to depth and scope of exploration and production, size can also be a determining factor in choosing an oil company. Bigger and more established oil companies often have higher market share, the ability to buyback their own shares and dividend payouts, but also carry higher levels of risk in the event of volatile markets.
It is also important to consider the level of investor and shareholder support for the oil company, keeping in mind the total number of shares and overall market capitalization of the company. Often, larger oil companies will have more shareholders, more shares in public circulation, and higher levels of overall investor support.
International Exposure & Political Risk
Investors who are considering investing in international markets should also assess the political risks associated with those markets before making a decision. Oil companies often operate in geopolitical hot spots around the world, meaning that political and economic risks can be high and significant volatility can occur.
Fundamental & Technical Analysis
When selecting which oil company stock to buy, investors should consider both fundamental and technical analysis. Fundamental analysis takes into account the company’s financials, such as earnings, debt-to-equity ratios, revenue growth and return on equity, among other metrics. Technical analysis looks at the historical data for the stock and its movement within the marketplace.
Crisis Management & Sustainability Practices
Finally, investors interested in investing in oil companies should consider the company’s crisis management and sustainability practices. In the event of a major incident, such as an oil spill, a company’s crisis management plan and response is essential to preserving the value of the stock. Additionally, sustainability practices, like renewable energy and responsible sourcing, are becoming increasingly important when it comes to any types of investments.
Industry & Market Trends
When selecting which oil company stock to buy, it’s important to consider the overall industry and market trends taking place in the sector. In the conventional oil markets, the focus is shifting away from exploration and production, to refining and processing. For investors, this means looking at companies that are developing new refining technologies, as this is often where future growth prospects lie.
Oil Company Investment Portfolios
Investment portfolios should also include a range of different oil companies, as diversification can help to hedge against potential risks. It’s important to invest in companies across the entire industry, as this provides the most diversification throughout the entire sector.
Low-Carbon Alternatives & ESG Factors
Investors should also keep an eye out for oil companies that are investing in low-carbon alternatives and sustainability practices. ESG (environmental, social, governance) investing has become increasingly popular, with investors taking into account environmental and social factors when deciding which stocks to buy.
Commodity Prices & Oil Company Performance
Oil prices are the primary factor that determines the performance of an oil company, so investors should keep a close eye on the price of oil. As a commodity, the price of oil can be volatile, meaning that investors should monitor their investments closely and make sure to take advantage of any sudden price moves.
Oil Companies & Dividends
For many investors, oil companies offer a great opportunity to benefit from dividend payments. As oil companies can often generate steady cashflows, they are more likely to pay out dividends as compared to other sectors. Investors looking to benefit from dividends should research the companies thoroughly, ensuring they understand the underlying risks associated with investing in such stocks.
Oil Discoveries & Production Estimates
Finally, the potential for oil discoveries and production estimates should also be considered when selecting which oil company stock to invest in. Oil discoveries can lead to unexpected flows of cash to oil companies and, if large enough, can lead to higher dividend payouts and returns for shareholders. Estimating production levels, as well as potential discoveries, can help investors make more informed decisions when investing in oil stocks.
