Best Wartime Oil Stocks: Profit from Rising Oil Prices
These days, following the oil market is a full-time job in itself. After a tear as Russia began its invasion of Ukraine, oil prices retreated yesterday, settling around $110 a barrel. Yet investors continue to buy oil stocks during the war to manage risk.
At the same time, officials are meeting with leaders in Venezuela and Saudi Arabia to facilitate supplies. Additionally, reports yesterday suggested that the OPEC member United Arab Emirates (UAE) is in favor of increased production.
Despite the optimism that led to lower oil prices yesterday, the market is flat today as the UAE reverses its statement.
The different types of oil stocks
Despite what many people think, not all oil companies are the same. In fact, every company plays a vital role in the production of oil and gas. To explain, the three main roles in the petroleum industry include:
- Medium &
Upstream companies are involved in the search for oil reserves and extraction, while the upstream transports the product. Then downstream companies will process and sell the final good.
Moreover, some companies are involved in the whole process, from extraction to sale. And finally, you can buy companies providing equipment or services to industry. So far, oil stocks are outperforming the market, SPDR Energy Select Fund (NYSE: XLE) up 15% since the start of the war.
Nevertheless, the purchase of oil stocks in times of war proves to be an excellent hedge. Find out below which companies are winning with higher oil prices.
Best Upstream Oil Stocks During The War
Upstream oil companies have some of the highest returns in the industry. On the one hand, as oil prices rise, these companies see their turnover skyrocket.
But there is one clear winner who is up almost 100% so far in 2022.
- Western Petroleum Corporation (NYSE: OXY): One of the biggest oil companies in the United States, Occidental is getting much bigger. In fact, the company’s market capitalization has doubled since last year and almost tripled from the previous year, hovering around $53 billion.
Shares of Oxy have risen nearly 50% since the start of the war as investors seek to profit from rising oil prices. After Warren Buffet stepped in to help outbid his rivals for Anadarko Petroleum, the company became an investor favorite. And most recently, the value investor increased his stake in the company with over 10% ownership. Could OXY become the next Berkshire Hathaway (NYSE: BRK.A) target?
Best Intermediate Oil Stocks During The War
Midstream companies generally follow the success of upstream companies. Yet the group fails to see the explosive returns achieved in upstream oil stocks during the war.
At the same time, it is one of the most critical parts of the operation that generates high cash flow.
- ONEOK inc. (NYSE: OKE): As a leading mid-tier provider, ONEOK is also experiencing higher profit growth. The company’s revenue has increased by more than 100% in the last three quarters.
After the pandemic, ONEOK reduced its CAPEX expenses to save funds. As a result, the company experiences high free cash flow (FCF) and returns it to shareholders via dividends (5.60% yield).
Best Downstream Oil Stocks During The War
Downstream oil companies are often the most well-known brands because they sell and market them. Even though these companies are trading higher, they are still overtaken by upstream oil stocks during the war.
With this in mind, downstream companies include the following.
- Marathon Oil (NYSE: MPC)
- Valero Energy (NYSE: VLO) &
- Phillips 66 (NYSE:PSX)
Likewise, during the pandemic, these companies have seen demand decline. But refined products are in dire need now that gas prices are hitting ATHs. And most importantly, demand doesn’t seem to be slowing down, with many countries looking to stop importing products from Russia.
Best Overall Oil Stocks
In addition to producing some of the highest returns so far in 2022, integrated oil stocks offer some of the best dividends in the industry.
- Exxon-Mobile (NYSE: XOM): As the largest oil company in the United States, Exxon is up 35% year-to-date with strong trading volume since the start of the war. More importantly, Exxon has a long history of rewarding shareholders through dividends (4.04% yield) and maintaining a strong balance sheet. That said, this should come as no surprise to investors flocking to XOM stocks.
- Chevron (NYSE: CVX): Chevron is the second largest oil company in the United States, with more than $155 billion in annual revenue. Not only that, but the company is making a strong transition to renewable energy. In particular, Chevron’s latest acquisition of Renewable Energy Group will help position it for the future of energy.
In summary, these companies are involved in the entire petroleum process. Although the business model is risky, integrated oil companies typically earn some of the highest returns when oil prices are high.
Is it worth investing in oil stocks during the war?
After years of underperformance, oil stocks are back in fashion. On the one hand, the economy promised to switch to renewable energy, putting further pressure on oil. As a result, many oil companies were unwilling to increase production and risk lower oil prices.
Now things are changing and the war is tightening the oil market. Even though Russian oil accounts for only about 8% of US imports, the new ban still results in record gas prices.
With that in mind, owning oil stocks during war proves to be one of the most effective ways to protect your wallet. That said, if US oil companies increase supply, it will drive prices down. But for how long ? And will they be ready to do it after what happened in the past?
However, the United States can also tap into the Strategic Petroleum Reserve if it wishes. Although this will require paying it back at some point, it could benefit national oil companies in the long run.
Investing in war is a risk. No one knows how long this will last or if it will get worse. Oil is an outperforming sector so far. Check out other stocks to buy during the war to see how you can protect your portfolio.
Pete Johnson is an experienced financial writer and content creator specializing in equity and derivatives research. He has over ten years of personal investment experience. Digging through Forms 10-K and finding hidden treasures is his favorite pastime. When Pete isn’t doing stock research or writing, you can find him enjoying the outdoors or exercising.