How to pick the most popular oil stocks

What are the most popular oil stocks to watch?

Oil stocks can be separated into two distinct categories: the fastest growing and the best value. Each has its own advantages and drawbacks, though it's important to note that even 'growth' oil companies are likely to have a very large market capitalisation.

Fastest growing oil stocks

1. Enbridge – operates one of the largest oil pipeline systems in the world, transporting 30% of the oil produced in North America. It also boasts an extensive natural gas pipeline system, a natural gas utility business and growing renewable energy operations. The pipeline operations provide stable cash flow and a virtually impregnable economic moat, backed by government contracts, regulated rates and a high cost of entry. This means it can pay solid dividends year after year, expand its energy infrastructure footprint and invest heavily in wind energy and hydrogen substructure.
2. Devon Energy – a US-driven exploration and producing company with diverse operations across a variety of low-cost oil basins. The company operates a fixed-plus-variable dividend framework. This framework pays out up to 50% of excess cash flow each quarter after funding its fixed base dividend and capital expenses. The cash-rich company engages in both share buybacks and further exploration to continue to deliver for investors.
3. Antero Resources – these shares have outperformed the wider market by a large margin in recent years. Founded in 2002, the oiler is a specialist in exploring hydrocarbon resources via fracking. Plus, it's involved in multiple activities along the supply chain, including petroleum, natural gas and ethane. The oiler may continue to grow as it operates within a niche in the sector. However, like all growth companies, there will likely be volatility along the way.*

* The shares listed here have been selected as some of the most popular oil stocks based on various factors such as market cap, future growth prospects and dividends paid. It’s important to do your own research when considering trading or investing in shares.

Best value oil stocks

1. BP PLC – this FTSE 100 oil major has experienced a volatile few years, including the fallout from the Deepwater Horizon Scandal, which has cost the company over $70 billion since 2010. However, the company remains one of the popular oil shares to buy. This is because it has benefited from rising oil prices since the start of the Ukraine War, engaged in share buybacks, increased dividends and experienced continued share price rises.¹
2. Shell PLC – the second FTSE 100 oil major, which recently divested its Royal Dutch nature, is a very common alternative to BP. The company continues to face accusations of greenwashing, amid other crises. Still, its international operations, combined with the elevated price of oil, have left the company in a similarly positive position as BP.
3. Chevron – founded in 1879, this US oil company is one of the world's most well-known, operating in 180 countries. It has exposure to the entire global supply chain, including exploration, development, production, refining and logistics. However, like many blue chips, its price-to-earnings ratio is usually higher than competitors because the shares remain in consistent demand.
4. Exxon Mobil Corp (All Sessions) – the result of a late 1990s merger between Exxon and Mobil, this oil titan is one of the largest companies in the industry. While the corporation continues to derive most of its income from hydrocarbon activities, it’s actively pioneering research into new green tech to create more efficient fuels. This long-term investment could send dividends higher in time.
5. ConocoPhillips – one of the most popular US-based oil companies, the firm operates in many of the world's most important oil regions, including Norway, Australia, Canada and the US state of Texas. These oil shares are on list to watch because they have historically outperformed the wider market – but of course, past performance is no indicator of future returns.*

* The shares listed here have been selected as some of the best value oil shares based on various factors such as market cap, future growth prospects and dividends paid. It’s important to do your own research when considering trading or investing in shares.

What affects the price of oil and oil stocks?

Oil is the energy source of the global economy and there are hundreds of competing factors driving its price up or down at any one time. Specialised oil commodity traders spend their entire professional lives attempting to understand where oil may go next. In short, predicting oil price movements is exceptionally complex.

However, the key elements to consider are:

1. Global demand and supply – this is economics 101, but it needs to be said. All being equal, decreases in demand and increases in supply will reduce the oil price, while increases in demand and decreases in supply will see the price go up
2. Geopolitical problems – political instability and war in major oil-producing countries can hugely impact the demand and supply of oil. Political tensions in the Middle East, including the Iranian oil crises, are good examples of how oil can be affected. Others include the Covid-19 pandemic and the Russia–Saudi price war²
3. OPEC policy-making – the Organisation of the Petroleum Exporting Countries is a powerful cartel that controls circa 75% of the world's crude oil reserves and 42% of global crude oil output. It can coarsely affect oil prices by imposing production cuts or increases³
4. Economic growth cycles – the capitalist system lends itself to cycles of boom and bust, whereby oil increases in price when demand is high in the boom periods and falls during the bust periods. A component of this phenomenon is inflation, whereby high oil prices feed higher inflation, which then sees consumer purchasing power fall, reducing oil prices
5. Natural disasters – earthquakes, hurricanes and floods can unpredictably devastate the oil supply of a major producer. A good example is Hurricane Katrina in 2005, which led to a price spike when oil production in the Gulf of Mexico temporarily collapsed

It's worth noting that trading or investing in oil stocks adds another layer of research and complexity compared to investing in oil alone. For direct exposure, we offer trading in oil via our contracts for difference (CFD) trading account.

How to start trading or investing in oil shares with us

So how do you go about buying oil shares? There are many different ways to invest or trade in oil with us. You might want to buy shares in companies like BP or Shell directly, trade on leverage using CFDs, or trade oil using a commodity-based ETF. Indeed, some investors choose a diversified oil ETF, like the Energy Select SPDR Fund, to diversify into multiple S&P 500 oil producers.

How to invest in oil shares with us

1. Create a share trading account or log in
2. Research and select your oil opportunity
3. Select 'buy' in the deal ticket (you can only go long when investing)
4. Choose the number of shares you want to buy and manage your risk
5. Open and monitor your position

How to trade oil shares with us

1. Create a trading account or log in
2. Research your oil opportunity
3. Select 'buy' to go long or 'sell' to go short
4. Set your position size and manage your risk
5. Open and monitor your position

Remember, trading with CFDs comes with added risk attached to leverage – so it's important that you manage your risk. Your position will be opened at a fraction of the value of the total position size, but you could lose more than this initial deposit because your potential profits and losses will be magnified to the full value of the trade. You'll also want to keep in mind that past performance isn't a guarantee of future returns.

If you're new to trading or to our platform, why not try our demo account to practise and build your confidence?

Advantages of oil stocks

As oil is so closely tied to the global economy, there are many reasons to invest or trade in the most popular oil stocks. The most important are:

• Diversification – oil stocks, and particularly oil ETFs are usually an excellent addition to a diversified portfolio. This is because they’re rarely strongly correlated with other traditional assets, such as bonds or real estate, which could reduce risk
• Income generation – the larger oil companies often pay out dividends, which can be particularly attractive to those looking for steady income and tech-sector investors looking to diversify their risk base
• Growth opportunities – while the price of oil continues to fluctuate, global energy demands are continuing to increase with development and population growth. Further, new oil discoveries and drilling advances can act as oil shares catalysts
• Trading volatility – seismic, geopolitical and natural disaster events can have significant short-term impacts on supply and demand, creating possible opportunities for traders to profit from the accompanying fluctuations in oil prices
• Inflationary hedge – like the US dollar and gold, oil is a common hedge against inflation. Higher inflation is typically driven by high oil prices, which usually sees oil company profits rise alongside their share prices. This hedge worked very well for investors in the inflationary aftermath of the Ukraine War

Risks of trading or investing in oil stocks

As with all strategies, there are risks associated with investing or trading in oil stocks. These include:

• Price volatility – unsurprisingly, the oil industry is highly sensitive to fluctuating oil prices, which can cause oil share prices to move erratically. For example, the supply glut in 2014 and 2015 and the Covid-19 pandemic both caused a significant drop in oil prices. These drops can be extremely fast, which can be particularly damaging when trading on leverage
• Beta volatility – the 'beta' (or volatility compared to the wider market) is often much higher than the FTSE 100 or S&P 500. This can create trading opportunities, but volatility is often a double-edged sword. Increased volatility can offer the opportunity to generate faster profits, but conversely means you can lose money quickly if the market turns against you. It's important to consider your risk tolerance and management strategies
• Dividend risk – most oil companies pay regular dividends to investors. However, falling oil prices can make it impossible to pay out the expected dividend. A good example is Seadrill, which suffered more than the average during the 2014–15 glut⁴
• Oil spills – accidents happen when drilling, but they can’t be accurately predicted and their outcome on share prices is fickle. BP's Deepwater Horizon fiasco saw the share price fall by over 50%, while Exxon fell by less than 5% after the Valdez spill in 1989
• Regulation – high oil prices tend to generate windfall taxes, which means there is a lid on profits and usually no support when oil prices fall. This effect can be damaging for both investment and oil share prices, as these taxes often stay in place long after oil prices have fallen back to more reasonable levels

How to pick the best oil stocks summed up

• The most popular UK-based oil stocks are the FTSE 100 majors, BP and Shell
• Oil prices are primarily affected by global supply and demand, which are affected by dozens of complex interlocking factors
• Oil stock investing can be very beneficial because it offers diversification, income generation and a historically proven inflationary hedge
• One key risk is the inherent volatility of oil prices, which can leave dividend returns exposed
• You can trade the oil price and oil shares in many different ways, depending on your risk appetite

¹ Best Oil Stocks – Forbes Advisor, 2024
² How To Invest In Oil: Directly & Indirectly – Seeking Alpha, 2024
³ How to start investing in oil & oil stocks – Unbiased, 2024
⁴ Top risks facing the oil and gas industry in 2022 – KPMG Global, 2024