Are oil and gas stocks worth the investment?

Oil and gas companies are among the largest and most successful companies in the world. However, the precarious market conditions and resulting volatility have hit the oil and gas industry hard, leading many investors to question how wise it is to invest in oil.

Knowing how, if and when to invest in oil requires an informed understanding of the ever-changing market. Over the past few years, the oil market has had drastic ups and downs. Although it is impossible to time the market, wise investments in oil and gas can prove lucrative.

A brief history of oil prices

So far, 2022 has been a tumultuous year for oil investments. A variety of factors have contributed to a storm of rising prices and demand, in stark contrast to what happened just two years ago.

The pandemic first decimated demand, dragging Saudi Arabia and Russia into a price war, driving prices down sharply. Oil and gas prices have fallen from $63.27 a barrel in January 2020 to below $20 within months. Then, on April 20, 2020, prices fell even further, rebounding to $37 a barrel.

Benefits of Investing in Oil and Gas in 2022

After the oil price freefall in 2020, crude oil rebounded tremendously. Oil prices reached pre-pandemic levels in February 2021, when they hit $60 a barrel. After a similar drastic drop in 2020, natural gas prices have also rebounded. In June 2022, crude oil was priced above $111 a barrel, signaling that oil and gas prices were rising.

Oil and gas investments offer a wide range of benefits, from tax incentives to lucrative profits. Since the Industrial Revolution, oil and gas have been the primary source of energy and demand doesn’t look like it’s going to drop any time soon. The United States is one of the major players in the industry and is the largest consumer of oil and gas in the world. Texas is the nation’s largest producer, accounting for 25% of our natural gas extraction and 41% of our oil.

One of the main advantages of investing in oil and gas related securities is that they can act as a natural hedge against inflation. For example, high oil prices translate into many higher prices in general. This can erode individual income. But for those who invest in these markets, their income will also increase during this period. Of course, the opposite will happen when prices fall.

When gasoline and oil prices rise, they can provide substantial dividend income and the potential for capital gains. As oil prices rise and these companies reinvest their profits to expand their businesses, increase production and pay dividends, they increase their value to investors. Dividend payments in the oil and gas sector also tend to pay more due to the substantial profits made when prices are high.

Although investing when prices are rising can be tricky due to timing, there is huge upside potential when economic conditions are right.

Oil and Gas Myths

  1. Are oil and gas almost exploited as resources? According to a 2015 statement from oil giant BP, despite huge demand, the world is not at risk of running out of oil or gas. Current methods and technologies are capable of recovering enough to double the world’s reserves by 2050. When all energy sources are considered (nuclear, wind and solar), there are enough resources to meet 20 times the demand worldwide during this period. Using current methods, BP has estimated that fossil fuel resources could grow from 2.9 trillion boe (barrel of oil equivalent) to 4.8 trillion by 2050, nearly double the projected amount needed to meet to global demand.
  2. Alternative Energy Demands: Energy demands are only increasing, and this demand is being met by oil, gas and alternative energy sources. Alternative energy sources are undoubtedly a growing industry with substantial potential. However, more fossil fuels will also be needed to handle this increased demand instead of less. It’s hard to believe that one power source will become the only power source and eliminate other options.
  3. Electric vehicles reduce demand: Alternative energy sources have grown in popularity in recent years, and one of the most popular is the electric vehicle. Despite this diversity, demand for crude oil has steadily increased since 2006 (with 2020 as a notable exception). Even then, more diversified energy sources are unlikely to hurt oil demand. Demand for plastics, which require oil, and vehicles and machinery that require diesel, are just two of many reasons that indicate oil production will remain flat for the foreseeable future.

Fossil fuel stocks perform well

The proven fossil fuel industry has done exceptionally well this year, even beating many blue chip tech stocks. According to an analysis by New York Times financial columnist Jeff Sommer, a breakdown of S&P 500 performance in 2022 found that 19 of the top 20 were companies involved in the fossil fuel industry in some way. . Overall, the best performer was Occidental Petroleum, which gained an astonishing 142%.

Despite some people’s concerns about climate change, fossil fuels continue to grow as they meet growing energy demands. Regardless of personal feelings or what climate activists come up with, the fossil fuel industry remains strong and, as of 2022, remains a lucrative addition to its portfolio.

Top Oil Stocks to Consider in 2022

The fossil fuel industry is booming right now and home to some of the best performing stocks of 2022.

WTI (West Texas Intermediate) crude oil prices are up 40% on the year and have soared 119% since January 2021. More recently, WTI crude oil prices have been hovering around $100. Bank of America expects WTI oil prices to continue to average around $100 per barrel through the end of the year and around $95 per barrel in 2023.

According to analysis by Bank of America, here are seven stocks listed for buy by Bank of America with ties to WTI crude oil:

  • Schlumberger AG (symbol: SLB)
  • Hess Corp. (HES)
  • Halliburton Co. (HAL)
  • Baker Hughes Co. (BKR)
  • Marathon Petroleum Corp. (MPC)
  • Chevron Corp. (CLC)
  • APA Corp. (APA)

The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are intended for general informational purposes only and should not be construed or construed as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or other personal finance advice. Epoch Times assumes no responsibility for the accuracy or timeliness of the information provided.

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