Alexander Bowring writes: It is true that oil stocks have taken a massive nosedive. In fact, the crash that caused the downturn was so seismic that it obliterated more than $1 trillion from portfolios since late 2014. You wouldn’t be wrong to be hesitant about placing your money, and your trust, in oil stocks because of this. You shouldn’t let this keep you from oil stocks though; this article explains the three reasons why they make for smart investments.

Hedging against rising energy prices

Oil stocks prices are dynamic, as they go up and down. Nobody can predict with certainty what will happen to them, and this is a risk to you: energy prices could rise unexpectedly. By investing in companies that will profit from rising oil prices, you’re setting yourself up to profit too, and are thereby protecting yourself from the dangers of oil volatility by hedging.

Collecting a growing income stream

A large part of the attraction of oil stocks is the generous income they seemingly allow for – and often this is the reason why people are invested in the sector. While, since the oil crash, oil stocks have had to cut investor payouts, most know that oil stock payouts are lucrative. Before the crash, they were issuing billions of dollars to investors each year.

Indeed, not all stocks have gotten rid of dividends. The dividends of both ExxonMobil and Valero Energy, in fact, have actually continually increased during the downturn. For example, Exxon increased by 2.7% earlier in 2015, in a continuation of its reputation of uninterrupted dividends income. Oil stocks, then, represent lucrative opportunities for dividends income.

Benefiting from global energy-demand growth

The pile up of oil in 2014 can be partly attributed to the fact that global growth in oil demand was weaker than expected. Typically, the cure for this is lower prices. Recently revisiting its forecast for the growth of oil demand, the IEA now sees that demand will grow by 1.3 million barrels a day. By 2017, demand is forecasted to average 97.4 million barrels daily.

In spite of efforts to counter global warming, it is expected that the demand for oil will still continue to grow and global growth will continue long into the future, thanks to the fact that emerging-market economies are only now beginning to flourish. Demand for oil will be growing at 0.7% per year by 2040, according to ExxonMobil. Though renewables are forecasted a sizeable demand growth, ultimately demand growth for oil is expected to be much higher thanks to emerging market economies.

Investor takeaway

Of course, the rough patch of the oil industry will inspire you to stay away from it. The reasons this article has outlined as to why this shouldn’t be the case should hopefully be enough to persuade you to stick with oil stocks. Hedge against your future losses with oil stocks, get good dividends from them, and know that the industry isn’t in permanent decline, meaning lots of investment opportunities are at hand.

Spreadbetting, CFD trading and Forex are leveraged. This means they can result in losses exceeding your original deposit. Ensure you understand the risks, seek independent financial advice if necessary. The value of shares and the income from them may go down as well as up. Nothing on this website constitutes a solicitation or recommendation to enter into any security or investment.

Alexander Bowring is a London based writer and a Southampton Solent University Screenwriting graduate. He has worked alongside TV personality and Telegraph feature writer Alison Cork, whilst also having produced content for ITV, This Morning, Canvas8, Who's Jack, Alison at Home, and Bonallack & Bishop Solicitors. Alexander also has a keen interest in investments.

Copyright © 2016 Alexander Bowring- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Only logged in users are allowed to post comments. Register/ Log in

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.