Crude oil prices have taken a beating, and oil stocks have felt the pain. Although black gold isn’t down for the count. Oil and gas stocks have fueled nations around the world for well over a century. And today, it’s still one of the most cost effective sources of energy.

A recession is knocking on your door and will keep oil prices low… but as always, another bull market will follow. So, over the coming years, oil prices will rebound as supply and demand balance out. The best oil stocks will likely emerge stronger than before. Although in the short term, investors should be prepared for more volatility and even dividend cuts.

List of the Best Oil Stocks

  • Exxon Mobil (NYSE: XOM)
  • Chevron (NYSE: CVX)
  • BP (NYSE: BP)
  • ConocoPhillips (NYSE: COP)
  • Royal Dutch Shell (NYSE: RDS.A)
  • Total (NYSE: TOT)

We’ll look at these oil companies in more detail below. But first, it’s useful to know why oil prices are dropping…

Why Are Oil and Gas Stocks Down?

Let’s get this out of the way… Renewable energy production will overtake fossil fuels. I’m looking forward to that future. But that’s likely many decades away, and the best oil business will profit along the way. The growth of solar, wind and other renewables has had little impact on recent oil prices.

The big drop in oil prices comes from 1) coronavirus cutting global oil demand and 2) OPEC increasing oil supply. Thanks to Econ 101, we know that lower demand and increased supply lead to lower prices.

Since investors are forward-looking, expectations from these events are what matter for short-term pricing. Then how they actually play out helps determine oil stock prices over time. So let’s dig into these events and their expected impact.

The coronavirus has led to shutdowns across the globe. Governments are locking down borders and restricting travel. As a result, flight cancellations are rampant, and millions of people have stopped driving to work. This has led to a sharp drop-off in oil demand. BP has projected a decrease of 300,000 to 500,000 barrels a day for 2020.

The pandemic will likely get worse before it’s better… but it will get better! Investors have seemed to price in lower oil prices for longer. But in recent history, the average recession has lasted less than a year. So, there will be a return to growth.

On top of a looming recession, Russia has pushed away from OPEC. Russia, Saudi Arabia and other top oil-producing nations haven’t agreed on cutting oil production. They’re some of the lowest cost producers, and they’re flooding the market. This puts even more downward pressure on oil prices. Although OPEC nations need higher oil prices to fund their operations. They’ll likely come to an agreement in the coming months.

For now, it’s a perfect storm for oil prices, and only the best oil stocks will survive. The longer oil prices remain low, the more oil companies will go bankrupt. This presents better buying opportunities for the big companies.

Top Oil Stocks Drop More Than 50%

The six supermajors are the largest publicly traded oil companies. They’re more diversified than smaller players and tend to have stronger balance sheets. Although, these top oil stocks have tanked with the entire market…

Oil Company Ticker Drop YTD Dividend Yield
Exxon Mobil (NYSE: XOM) -52% 10.6%
Chevron (NYSE: CVX) -54% 9.4%
BP (NYSE: BP) -57% 15.6%
ConocoPhillips (NYSE: COP) -64% 7.3%
Royal Dutch Shell (NYSE: RDS.A) -63% 17.4%
Total (NYSE: TOT) -55% 11.8%

 

Oil stocks have crashed, and the dividend yields are huge. Although with lower oil prices, dividend safety isn’t looking as good. If prices don’t recover in the next year or two, there’s a high chance these companies cut their payouts. For a closer look, check out Exxon Mobil Dividend History and Chevron Dividend History.

Still, the best oil stocks will survive and likely emerge stronger as the small companies go bankrupt. Supply and demand will balance out, but it will take some time.

Overall, the oil industry isn’t for risk-averse investors. But if you can stomach the volatility and hold for a few years, you might far outpace broader market returns. The best oil and gas stocks might be some of the best contrarian plays of the decade.

Whether you invest or not, there’s a nice upside. Cheap gas at the pump! To stay up to date on important market news, you can sign up for our free e-letter. It’s packed with insight from investing experts.

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