A Guide to Investing in the Oil Industry
A Guide to Investing in the Oil Industry
Oil is at times described as the lifeblood of the global economy and it isn’t hard to see why. For thousands of years the black liquid has served a wide variety of purposes with the most famous of which being it’s an efficient form of fuel.
Today, not only is oil used in the production of many consumer products, but it’s what the world runs on… sorry Dunkin’. This label of “lifeblood” of the global economy starts to make a bit more sense when you realize how vital it is to so many different industries.
With so many use cases for oil, it is no wonder it has earned the nickname of “Black Gold” due to its value. It’s necessary to our very way of life, even as the world tries to get away from using it as a source of fuel. This is what complicates the idea of completely severing our dependency and use of this commodity.
Oil is one of the most important natural resources we have and that is also why many investors flock to investing in Black Gold in one way or another. After reading this article and a fair bit of research, you may feel compelled to do the same.
What is the Oil Industry?
The oil industry is a gigantic one with several countries around the world pumping out millions of barrels of it each and every year. According to IBISWorld, a leading business intelligence firm, the total revenues for the oil and gas drilling sector came to approximately $2.1 trillion in 2021 (1). That’s a lot of oil...
As previously mentioned, there are a lot of uses for oil outside of transportation. Some more alternative industries that consume oil include, electronics, textiles, sporting goods, health and beauty products, medical supplies, and countless household items including many forms of plastics (2). As a matter of fact, it’s hard to pinpoint an aspect of life that isn’t touched by oil in some form or another.
Despite the many uses for oil, none compare to its use as a solution to energy requirements around the globe and that’s not just for transportation. Oil is used in the production of electricity which then is used to heat or cool buildings around the globe. There’s no question, the energy industry is currently dominated by oil. It even represents a large portion of the global economy and it is so highly valued (3).
While the energy industry has many forms of solutions to the planet’s ever-growing need for power, oil is at the heart of it all. Consider electric vehicles, the electricity to power this popular, new technology largely depends on fossil fuels like oil, coal, or natural gas (4), which makes it a vital part of the process.
In the United States alone we use about 20 million barrels of oil every day. That’s right, each day our vast reliance on oil requires about 20 million barrels of oil to satisfy the rigors of daily life. From the cars we use to drive to work to the electricity used to light, heat and/or cool the buildings we live and work in, oil truly is the lifeblood of our economy.
When it comes to the production of it, several countries combine production in order to meet the global requirement of oil. These include the United States, as well as Saudi Arabia and other OPEC nations, such as Russia. The rest of the world relies on this handful of nations to deliver on the Black Gold they need to keep the proverbial lights on.
Why Invest in the Oil Industry?
Investors have always found some room in their portfolios earmarked for oil investments. Moreover, some of the savviest investors ever often have large positions related to the oil industry. In fact, one of the most well-known investors of our time, Warren Buffett, has one such position in a particular oil company. According to CNBC and Berkshire Hathaway’s Q1 2023 13F filing released May 15, 2023 (4), the firm’s position in Chevron CVX was valued at just under $21 billion and Occidental Petroleum OXY valued at over $13 billion.
One of the most important parts to investing in this industry is that many of these oil stocks pay a dividend on each share an investor owns. These dividends make a difference over time and since these oil companies have a product that is so valuable and in such high demand, they can afford to pay these dividends to investors without having to take on any new debt.
This highly valued and demanded product keeps the oil companies making money year in and year out, which leads to a sturdy price with some appreciation.
However, this is not to say oil stocks don’t have sensitivities. The value of these stocks largely depends on what is going on in the oil markets. If Saudi Arabia or any of the other OPEC nations decide to make production cuts (5), it could have a drastic effect on the industry as a whole. Along with that, the prices of these oil stocks.
In the end, only you are able to decide what to add to your personal investment portfolio, so be sure to do all the necessary due diligence beforehand. That means assessing your risk tolerance, your need for income in the form of a dividend, or just your plain desire to own an oil stock in the first place. These are but some of the questions investors need to ask themselves not for just oil stocks, but most investments in general.
How to Invest in Oil?
The “how” regarding investing in oil stocks has never been easier to get figured out. You can easily search for the stock you are interested in adding to your investment portfolio and buy it. In fact, thanks to Magnifi’s AI-powered investment guide, you’ll receive personalized investment guidance like never before.
Before you go off and build your own personalized AI-powered portfolio, below are just a few of the searches you can conduct in order to learn more about all the various ways to invest in oil stocks and funds.
You can also read more about investing in energy more broadly by reading our “Investing in Energy” article (6). This will shed more light on investing in the entire energy sector, not just the oil industry and should help you along with your research into what investments you want to hold in your portfolio. Get started today!
References:
- “Global Oil & Gas Exploration & Production”, March 30, 2022, ibisworld.com
- “Uses for Oil”, capp.ca
- “What Percentage of the Global Economy Is the Oil and Gas Drilling Sector?”, August 19, 2022, investopedia.com
- “Berkshire Hathaway Portfolio Tracker”, May 15, 2023, cnbc.com
- “OPEC+ sticks to 2023 oil production targets”, June 4, 2023, cnbc.com
- “Investing in Energy”, April 19, 2023, magnifi.com
Disclosures:
The information and data are as of June 9, 2023 unless otherwise noted and subject to change. This blog is sponsored by Magnifi.
This material is provided for informational purposes only and should not be construed as individualized investment advice or an offer or solicitation to buy or sell securities tailored to your needs. This information covers investment and market activity, industry, or sector trends, or other broad-based economic or market conditions and should not be construed as investment research or advice. Investors are urged to consult with their financial advisors before buying or selling any securities. Although certain information has been obtained from sources believed to be reliable, we do not guarantee its accuracy, completeness, or fairness. Past performance is no guarantee of future results. This content may not be reproduced or distributed to any person in whole or in part without the prior written consent of Magnifi. As a technology company, Magnifi provides access to tools and will be compensated for providing such access. Magnifi does not provide broker-dealer or custodial services.
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