Researching and finding the best oil stocks can be a long task. The oil sector has become more of a stable market since the 2015 price implosion of crude oil. Although no one knows the directional price movement of oil, most analysts believe it will float around the $60 mark for a while. However, some bullish analysts think it could reach a high of $80 in the future.
Over the past few years, the oil stocks dropped. This was necessary to allow oil prices to recover from its slump. The conditions created by OPEC, such as less production have led to new multi-year stability for both the oil prices and stocks in this sector. Oil stocks are known to provide long-term passive income for investors, have a high ROI potential, substantial tax benefit, and portfolio diversification. Thus, oil stocks meet several aggressive investment objectives, making them excellent additions to your portfolio. Our picks for the best oil stocks will introduce you to the major players in the US and how the market works.
Best Oil Stocks: Our Top Picks
For the best oil stocks, we focused on the publicly listed oil companies in the US with massive operations. These companies are big players, both on the national and international stage, with a market cap of billions of dollars. If OPEC continues to control the production of global oil, the crude oil price could surge higher, which would lead to the stocks performing well in the long run.
Exxon Mobil (XOM)
Exxon Mobil is an Irving-based oil company. It is currently the world’s largest publicly traded oil company, with a market cap of over $250 billion. Their operations are present in all parts of the world and are involved in several aspects of crude oil production and processing.
The activities range from deepwater drilling off the Australian coast to regular drilling in the Middle East and other parts of the world. In 2017, Exxon splashed $5.6 billion to double its holdings in the Permian Basin. The investment now accounts for one-third of US oil production.
While Exxon has indicated the willingness to grow, it plans to be patient with future deals regarding acquisitions. Exxon is the largest refiner in the oil as it owns 37 refineries in 21 countries around the world. The daily refining capacity of the company currently stands at 4.9 million barrels.
The company operates under different brands, including Exxon, Mobil, Esso, and ExxonMobil Chemical.
Chevron Corporation (CVX)
Chevron is another American multinational oil company. It is one of the largest publicly traded oil companies in the world, with a market cap of over $150 billion. The California-based company is active in over 180 countries around the world.
Despite their global presence, Chevron’s activities are mostly found in Southeast Asia, the west coast of North America, the U.S. Gulf Coast, South Korea, and Australia.
They are engaged in various aspects of oil, geothermal energy, and natural gas. Chevron carries out hydrocarbon exploration and production; refining, marketing and transport; chemicals manufacturing and sales; and power generation.
Although Chevron is mostly known for its upstream activities, the company’s downstream operations are also significant. The company runs roughly 4,000 convenience stores across the US supplying lubricants such as polyalphaolefin.
Chevron operates under several subsidiaries such as Texaco, Chevron Philips Chemical, Chevron Oronite SA, and a wide range of others. Its daily oil production in 2018 was 791,000 barrels.
Marathon Petroleum (MPC)
Marathon is one of the largest petroleum companies in the United States. The Ohio-based company is involved in oil refining, marketing, and transportation. With a market cap of over $90 billion, Marathon Petroleum was ranked No. 41 on the 2018 Fortune 500 list of the largest US companies based on market cap.
Marathon has expanded its operations in recent years. In 2018, the company bought Andeavor, an independent refinery, and oil company in the US, in a deal worth $23 billion.
Marathon’s partnership with MPLX LP enables the company to boost production. They sell gasoline products through Speedway Stations and Marathon. The Speedway brand currently operates over 4,000 retail outlets across the United States. The total daily oil production of Marathon Petroleum now stands at 332,000 barrels.
ConocoPhillips is another American multinational oil company with a presence in several countries around the world. The company is actively operating in 15 countries across the globe. The merger between Conoco Inc. and Phillips Petroleum Co in 2002 led to the birth of ConocoPhillips. However, the company spun off its downstream assets in 2012, leading to the creation of a separate company, Phillips.
With a market cap of roughly $38 billion, ConocoPhillips is ranked the 95 company on the Fortune 500 list of the largest corporations in the US. ConocoPhillips explores oil and gas in 15 countries around the world. Its daily production currently stands at 1.5 million barrels, making it one of the largest refiners in the world.
ConocoPhillips explores for, produces, transports, and sells crude oil, bitumen, natural gas, liquefied natural gas (LNG), and natural gas liquids (NGLs) around the world. The company divides its operations across regions. They are present in the US mainland, Europe, North Africa, Alaska, Canada, the Asia-Pacific Region, and the Middle East.
The local gas produced is sold to several clients including local distribution companies, utility companies, industrial enterprises, marketing companies, and oil and gas exploration and production companies.
EOG Resources Inc. (EOG)
This company is regarded as the Apple of oil as it heavily uses technology and big data to help with the drilling of crude oil. The Texas-based oil company has a market cap of roughly $17 billion, which makes it one of the largest oil companies in the world. It is also listed amongst the Fortune 500 corporations in the United States.
EOG is the largest crude oil producer in the Eagle Ford shale formation in south Texas. Also, it holds a sizeable chunk in the Permian’s Delaware Basin. In 2018, EOG averaged around 719,000 oil barrels per day, with 92% of them from the US. Its other operations are in Trinidad, Canada, the United Kingdom East Irish Sea, and in the China Sichuan Basin.
How Oil Drilling Works
Oil drilling has been around for over a century, with crude oil serving as the primary energy source since then. Although oil is abundant in some countries across the globe, the extraction process is technical and resource-intensive.
Despite the several methods of drilling, they usually follow the same pattern, which we will explain in this post. The process starts with drilling a hole deep into the earth. To drill the hole, a long bit will be attached to a drilling string. The bit will differ in diameter, depending on the nature of the environment.
After the drilling of the hole, a steel pipe usually smaller than the hole’s diameter is dropped into it and cemented to fill the gap. This casing is essential as it gives structural integrity to the hole. It also isolates the high-pressure areas of rock, which could explode if they are allowed to release.
As the bit moves deeper into the hole, the engineers add new sections of pipe to the string. The process is known as “making a connection” as the pipes are screwed on the top-drive at the surface of the hole.
Completing the Well
After the hole has been drilled, the next step is to complete it or get it ready for extraction. The completion process involves perforating the casing to enable the oil to enter the tube. The bottom of the reservoir is filled with sand or gravel, as they act as a screen.
Either high-pressure water or acid is pumped through the pipe to clean and fracture the rock. This encourages the rock to start releasing hydrocarbons. The main reservoir is shut off and connected to the surface with the help of small diameter tubing.
The production phase comes next and is regarded as the most critical part of the process. At this stage, the oil or gas is extracted from the ground. Most of the time, the pressure inside the well reservoir is enough to expel the oil to the surface. However, for depleted areas, there is a need to use a pumpjack or other means necessary to push out the oil.
Oil wells don’t die. However, they reach their economic limits. This is the point where the oil coming out doesn’t match the cost involved in running the operation. At this stage, the tubing is removed, and is cement is poured into the hole. This is to ensure that the hydrocarbon reservoirs do not mix with the water. Next, the pump head is removed, and a cap is welded instead. The oil pit is buried afterward.
Global Demand for Oil
The global demand for oil currently stands at over 100 million barrels per day. The figure has been consistently increasing over the past decade and is expected to grow more prominent over the coming year.
In 2017, over 50% of the OECD oil supply was used by the road sector. Petrochemicals (14.3%), residential/commercial/agriculture (9.09%), aviation (7.8%), marine bunkers (3.3%), electricity generation (2.3%), and rail and domestic waterways (1.7%) are some of the other industries with a massive demand for oil products.
Oil Stocks: Closing Thoughts
Despite the emergence of electric cars and the talks about the environment, crude oil continues to be very important in several sectors of the global economy. If you are a believer in the future of oil, then the companies reviewed in this post could serve as excellent long-term investment options.
The global oil demand currently stands at around 100 million barrels per day. The figure is expected to grow over the next few years, and this is good for the oil and gas companies.