How You Can Benefit From The Rise In Oil Prices

A crude oil barrel currently sells for nearly $105 and gas is nearly $4 a gallon in most regions of the country. Investors may be looking for a way to get long the oil market. I suggested that investors buy Exxon last July at $60 per share because the stock was way too cheap. Now that Exxon is up to $85 a share; it is no longer the value play it once was.  If you think that oil prices will keep rising, here are a few ways to benefit from a continued rise in oil prices.

Total (TOT)

Total is an my favorite major integrated oil company right now. Shares currently trade at just $60 a share. The stock is a great dividend play with a 4.3% yield.  The stock trades at just 8.5 times earnings and analysts have very low earnings projections on the stock. They are only expecting 3% annual growth which I believe Total can easily beat. Total is investing heavily in diversified oil operations devoting $2 billion dollars of its $20 billion dollar budget in exploration alone.

United States Oil ETF (USO)

USO gives investors a chance to benefit directly from escalating oil prices. USO tracks the  spot price of West Texas Sweet Crude Oil. The ETF aims to replicate the price as closely as possible but is subject to some deviation. This is a very efficient oil ETF with lower than average expenses and absolutely no portfolio turnover. It’s an effective oil trading vehicle.

Oil Services Holders  ETF (OIH)

A continued rise in oil prices is a benefit for the oil services companies as well. Schlumberger, Halliburton, Baker Hughes, Transocean, and National Oilwell Varco. Buying the OIH exchange traded fund will give investors access to all of the major oil service providers.  Higher oil prices means that energy companies will use the services and technologies of these companies for exploration, production, and refining of oil. Oil companies will rent more rigs, drills, and other oil services equipment as along as crude oil prices remain high. This equates to premium rental rates for these oil service companies.

iPath S&P GSCI Crude Oil TR Index ETN (OIL)

This ETN is linked to the performance of the Goldman Sachs Crude Oil Return Index. It is an unlevered ETN. OIL reflects the returns that are potentially available through an investment in the futures contacts comprising the index plus the Treasury Bill rate of interest that could be earned on funds committed to the trading of the underlying contracts. ETN’s are relatively new investments having only been available for five years.

These are just a few of the ways that you can gain access to the energy market. There are hundreds of mutual funds, exchange traded funds, and stocks that will give investors access to the sector.

Comments

  1. Great job with the Exxon pick. Now that I am debt free, I’ll definitely need to take your advice to heart.

  2. This is an brilliant post. Thanks and will take your suggestion.

    Thanks for sharing

  3. avatar Jason says:

    I’ve been curious, where do you find a company’s worth/earnings/etc.? It’s vital to know that information when deciding where to put money, but I don’t know where to look!

  4. I agree, USO is absolutely an efficient oil ETF.

  5. I also like CBEH. Their earnings were released today. Its earnings per employee was $219,448 for the last 12 months. Its revenue per employee was $1,799,577 for the same period.

  6. Finally some positive things about oil rising, Im tired of reading the doomsday articles that I keep seeing. Thanks for the advice. Im in full agreement on TOT… 8.5% earnings is such a good value, not to mention they have a built in gain with a huge dividend like that. I think I may just buy in on this one. I wish I had gotten into Exxon, and BP when they were at their lows.

    • avatar eric says:

      the right moment to buy and invest in common stock is the moment when you can spend the money and to buy the stock and the amount you like to buy

  7. Great article! Very informative. Remember to factor in the costs of producing and working with oil. Glossing over that may make revenue seem more impressive than it really is.

  8. avatar Pat S. says:

    Yahoo finance is my favorite screening tool. Definitely agree with your analysis of the above stocks. Look like some decent buys.

    One thing I like about Exxon-Mobil as well, is that of all the oil companies, they seem to have the largest push towards alternative energy sources such as algae based biofuels and other replacements for oil, while simultaneously continuing oil exploitation worldwide. I just like going into investments knowing that there is a potential for permanence and staying power. Although oil is the only game in town, the future will belong to the company or companies that provide the first affordable viable alternative.

    Pat S.

  9. avatar JT McGee says:

    CVX has run a bit high, but it’s an integrated play that I like. Fat dividends, less exposure (but still some) to oil’s upside, and extremely low PE. Oh! Commitments for billions in buybacks, as well.

  10. Great article! I bought TOT shortly after Deepwater Horizon went down, and felt the deal was too good to pass up. I loaded up on XOM at that time too, but really wish I left a little in the tank for CVX. I purchased Chevron later after a run-up. Thanks for the discussion. I normally only invest in dividend growth stocks, but TOT was valued so low it couldn’t be passed up. I think it’s a great company overall.

  11. avatar Inq says:

    USO and OIL ETFS invest in Oil futures. Caution is that filing taxes could be painful.

  12. Inq, how so?

  13. Based on some research I found USO is structured like a partnership. Therefore, the person holding/selling USO has to pay a great deal of taxes. Is this true?

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