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How to Invest in Oil Stocks

Reported by lily | November 30th, 2020 @ 12:14 AM

How to Invest in Oil Stocks

Investing in oil stocks used to be a no-brainer. A growing world population and increasingly globalized economy required vast amounts of fossil fuels to heat homes, ship goods across the ocean, and fuel jet-setters' trips to that business conference in Tokyo.

Things are a lot less certain for the oil and gas industry these days. Global oversupply of crude oil and natural gas, combined with fluctuations in demand, have caused the entire energy sector to significantly underperform the market in recent years. Major oil price crashes in 2014 and 2020 rocked the entire industry. And renewable energy continues to get cheaper and more widely used.

Even so, an investment in oil can still offer value. You can invest in oil stocks by being aware of how oil prices are affecting the market and by focusing on dividends.

Keep an eye on the oil market One of the biggest factors governing the oil industry is, of course, the price per barrel of crude oil. When crude oil prices rise, oil stocks tend to go up, too. When crude oil prices tumble, so will the prices of most oil and gas stocks. For example, when global demand for fuel crashed because of the COVID-19 pandemic, oil stocks were among the hardest hit.

Know the differences among oil stocks Not all oil stocks are created equal. In fact, "oil companies" may operate in entirely different parts of the industry. It's important to know what kind of company you're investing in before you buy.

Focus on the dividend Oil companies' struggles don't seem likely to disappear anytime soon. Even if they go through a period of short-term calm (such as the period between 2017 and 2019), global events outside their control can set them back on their heels quickly. That's why, for long-term investors who don't want to have to constantly monitor the oil markets, dividend investing is probably the best choice here.

How to invest in oil stocks with little money Oil stocks run the gamut from large to small, and the share prices of oil companies are similarly varied. For example, just among the integrated majors, prices have ranged from as little as $15/share all the way up to more than $100/share.

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