2 Ways I Can Use Major Oil Stocks to Take Advantage of Record Oil Prices Now

Oil pipes in an oilfield

Key points

  • Oil prices hit new highs not seen in eight years, pushed by worries around Russia and Ukraine

  • I can benefit from high prices taking into account both stock price gains and dividend payments from major oil stocks

  • I need to be aware of the volatility that exists when buying commodity-related stocks

This week, Brent crude oil prices rose above $100 a barrel, the highest level since 2014. Although this has attracted a lot of attention, oil prices have been rising over the past few months. Even going back to Christmas Eve last year, prices were only around $75 a barrel. Gains in 2022 helped drive major oil stocks higher, boosting profitability. Given the current momentum, here are a few ways I think I’ll take advantage.

Aim for share price gains

The first is to try to take advantage of further appreciation in the stock price. Historically, the actions of major oil stocks have correlated well with movements in the underlying commodity. Therefore, it is not so surprising that some of the best performing stocks over the past few months have been in the oil sector.

For example, the Shell the stock price is up 18% in the last three months and almost 32% in the last year. glencore shares are also up 13% in the past three months and 39% year on year.

Looking ahead, I may consider buying these oil stocks thinking that if the price of oil continues to rise, I should also profit from the rise in the stock price. Some analysts are calling for Brent to return to $125 this year, bringing it back to levels last seen a decade ago.

Take advantage of passive income from major oil stocks

The second way I can aim to profit from major oil stocks is by paying dividends. The increase in the price of oil helps to increase the income of producers, because the final product is worth more. In this way, higher profits allow the company to allocate part of it to pay out to shareholders via a dividend.

For example, in Shell’s latest results earlier this month, adjusted earnings for the fourth quarter ballooned to $6.4 billion. That figure was up from $4.1 billion in the third quarter. He noted that this was largely due to rising commodity prices, citing movements in oil and gas. In this context, the company announced an increase in the dividend per share and a major share buyback program.

Therefore, if I buy selective blue-chip oil stocks that have a generous dividend yield, I can take advantage of that money in the future. It is also a good way to generate passive income. Once I’ve made my investment choice, I don’t have to work hard to take advantage of the dividend stream in the future.

In terms of risk, any stock linked to the fate of a commodity could raise concerns. A top oil stock could be managed very efficiently, but if the price of oil drops, it will eventually struggle. Moreover, some might argue that the price of oil is overvalued. If that turns out to be the case, then I might buy at the top of the market.

The post 2 ways I can use major oil stocks to take advantage of record oil prices now appeared first on The Motley Fool UK.

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Jon Smith and The Motley Fool UK have no position in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we give in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of information makes us better investors.

Motley Fool United Kingdom 2022


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Felix J. Dixon