January 18, 2023
For more than 5,000 years, humans have used crude oil. We’ve used it to power our vehicles and we’ve used it as an anti-mange treatment for camels. While all the uses might be wildly different, one thing has remained constant: Oil is valuable.
And whenever something is valuable, it is traded. You might not think that a liquid that is the second most abundant on earth after water would hold value, but its myriad uses make it one of the most traded commodities on the planet. Like it or not, it literally fuels the world.
There are many ways to invest in oil as a commodity, but in this Insights, we will focus on how retail shareholders can invest in companies operating in the oil and gas industry. If you are looking for information about investing in oil options or futures, this is not the Insights for you, but we will save that for another post. In this Insights, we focus on the oil and gas stocks you might consider as an individual investor, along with some ETFs and mutual funds that cover the sector.
Even though the world is working to wean itself from fossil fuels such as oil, it remains one of the most important commodities. In fact, many oil companies are shifting to become energy companies, agnostic of what form that energy comes in. Because of that and our continued reliance on oil-related products, oil companies are some of the most valuable in the world.
If you are a retail investor and not sure about investing in individual oil stocks, you might consider exchange-traded funds (ETFs) or mutual funds instead. These funds allow you to invest in a group of assets in a single purchase. ETFs that invest in oil stocks are plentiful and include funds like the Invesco Dynamic Energy Exploration & Production ETF (Tii:PXE), iShares U.S. Oil & Gas Exploration & Production ETF (Tii:IEO), Fidelity MSCI Energy Index ETF (Tii:FENY), SPDR S&P Oil & Gas Equipment & Services ETF (Tii:XES), Vanguard’s Energy Index Fund (Tii:VDE) or the Energy Select Sector SPDR Fund (Tii:XLE) to name just a few.
ETFs are an enormous part of the market and many retail investors hold shares in them. While they arguably started with SPDR, which tracks shares in the S&P 500, they now represent everything from broad market indices to individual market sectors to alternative asset classes like commodities, real estate, and foreign currency. Individual investors can find ETFs for just about any interest they might have. ETFs are funds that pool the money of a group of investors to buy a collection of securities. The collection can include a small number of stocks, bonds or commodities or hundreds of pooled securities. Learn more about ETFs here.
Of course, retail shareholders can invest in individual oil and gas stocks as well. Major oil companies traded on the market include ExxonMobil (Tii:XOM), Chevron (Tii:CVX), Shell (Tii:SHEL), BP (Tii:BP), Conoco Phillips (Tii:COP), Equinor ASA (Tii:EQNR), Enbridge (Tii:ENB) and TotalEnergies SE (Tii:TTE).
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Individual investors concerned about ESG (environmental, social and governance) issue might shy away from oil stocks at first glance, but oil companies are some of the largest investors in renewable energy.
BP is working in the areas of bioenergy to produce more renewable fuels made from waste or plants, electric vehicle charging to accelerate the switch to electric vehicles, renewables that can be used to power millions of homes and businesses with low carbon energy from the sun and wind, and hydrogen and carbon capture and storage. ExxonMobil and Porsche are testing advanced biofuels and renewable, lower-carbon eFuels. The specially-formulated Esso Renewable Racing Fuel will be tested on the racetrack in Porsche’s high-performance motorsports engines. Other oil companies are adding alternative energy sources as well.
The Medieval Latin word “petroleum” means “rock oil” in English, so it is clear oil has had a place in our culture for thousands of years. And while the uses of it might change, it will continue to hold importance long into the future.
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