How to pick popular oil stocks

What are popular oil stocks to watch in 2023?

Popular oil stocks can be separated into two categories: the fastest growing and popular value oil stocks.* Each has its own advantages and drawbacks, though it's important to note that even a 'growth' oil stock is likely to have a very large market capitalisation.

Fastest growing oil stocks in 2023

Enbridge

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 keep on paying solid dividends year after year, expand its energy infrastructure and continue to advance renewable energy technologies.¹

Devon Energy

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.^2,3

Antero Resources

Antero Resources – this growth oil stock has 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 company 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 stocks listed here have been selected as some of the most popular oil stocks based on various factors such as strength of fundamentals, future growth prospects and dividends paid. Learn more about how to pick stocks. Like with any trading and investing activity, it’s always important to remember that past performance is no guarantee of future returns.

Popular value oil stocks in 2023

BP

BP – 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 most popular oil stocks. It has benefitted from rising oil prices, engaged in share buybacks, increased dividends, and experienced relatively steady share price rises since late 2020.⁴

Shell

Shell – this company is another FTSE 100 oil major – it’s a very common alternative to BP. The company continues to face accusations of greenwashing (as of 2023), 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.

Chevron

Chevron – founded in 1879, this US oil stock is one of the world's most well-known companies, 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 stock remains in consistent demand.

ExxonMobil

ExxonMobil – 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.

ConocoPhillips

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. The company is one of the most popular oil stocks to buy because it has historically outperformed the wider market.

*The stocks listed here have been selected as some of the most popular value oil stocks based on various factors such as strength of fundamentals, future growth prospects and dividends paid. Learn more about how to pick stocks. Remember, past performance is no guarantee of future returns.

What affects the price of oil and oil stocks?

Oil is the energy source of the global economy, and there are hundreds of warring factors driving its price up or down at any given time. Specialised oil commodity traders spend their a lot of time attempting to understand where the price of oil may go next.

While assessing where oil price movements may likely go can be complex, there are some key elements to consider, which can present advantages or risks in trading this commodity. These include:

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. The opposite is also true – the price of oil goes up when demand increases and supply drops.
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 the price of oil can be affected. Others include the COVID-19 pandemic and the Russia–Saudi price war.⁵
3. OPEC policy-making – the Organisation of the Petroleum Exporting Countries is a powerful cartel that controls around 75% of the world's crude oil reserves and about 42% of global crude oil output. It can coarsely affect oil prices by imposing production cuts or increases.⁶
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. 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.

How to start trading on oil stocks with us

1. Create an account or log in
2. Learn more about oil stocks
3. Search for your opportunity
4. Select 'buy' to go long or 'sell' to go short
5. Set your position size and manage your risk
6. Open and monitor your position

With us, you can trade on oil stocks, commodity-based ETFs, and indices that include oil companies in their holdings via contract for difference (CFD trading).

Contracts for difference enable you to take a position on an underlying market’s price movements, rather than owning the shares outright. CFD trading is leveraged, so you could gain or lose money quickly – including the potential to lose more than the initial deposit paid to open the position as potential profits and losses are magnified to the full value of the trade. It's useful to keep in mind that past performance isn't a guarantee of future patterns.

Learn more about how to trade oil

New to trading? Practise on a demo account to build your confidence.

Advantages of trading on oil stocks

As oil is so closely tied to the global economy, traders choose to trade on oil stocks for different reasons. The main ones include:

• 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 reduces risk
• Income generation – large oil companies typically pay out dividends, which can be particularly attractive to pensioners looking for steady income and other investors looking to diversify their risk base. Buy-and-hold volumes, together with other factors such as demand, can contribute to the price fluctuations of stocks, which leads to more trading opportunities
• 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 stock price movement catalysts
• Trading volatility – seismic, geopolitical and natural disaster events can have significant impacts on the supply and demand of oil, creating 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. Increasing oil prices often contribute to rises in inflation, which typically sees oil companies’ profits rise alongside their share prices

Risks of trading on 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 stock 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 – conversely, it means you can incur losses rapidly if the market turns against you
• 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 average during the 2014–15 glut⁷
• Oil spills – accidents happen when drilling and it might not be possible to foresee them – part of the outcome is usually a fickle stock price. BP's Deepwater Horizon fiasco saw the stock 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’s a lid on profits and usually no support when oil prices fall. This effect can be damaging for both investment and oil stock prices, as these taxes often stay in place long after oil prices have fallen back to more reasonable levels

How to pick popular oil stocks summed up

• The most popular oil stocks include BP, Shell, ExxonMobil and Chevron
• Oil prices are primarily affected by global supply and demand, which are affected by dozens of complex interlocking factors
• Oil stocks and ETFs can be used for diversification as they’re rarely strongly correlated with other traditional assets – such as bonds or real estate
• One of the key risks of trading this commodity is the inherent volatility of oil prices