Oil dropped to just over $40 per
barrel, and oil stocks have taken a hit. If you're worried that oil will stay
at a low price, then refiners are a good investment.
They do very well
when the price of crude is low. Low prices means they can refine more oil, so,
apart from the initial hit on inventory, future profit opportunities are
strong. People also tend to buy more gas when oil is low, so there's more
demand for the refineries.
My latest research
focus was the Asset Management, Industrial and finally the Energy Sector.
Within the Energy
sector, companies from the downstream segment like Oil refinery stocks look
attractive for me. They do not depend highly on the oil price, more on the
cracking margin.
The business of
the refining players is negatively correlated with crude prices. This is
because the companies use oil as an input from which they derive refined
petroleum products like gasoline – the prime transportation fuel in the U.S.
Hence, lower the oil price, higher will be their profits.
We can say that
the decline in crude price, which is expected to continue for some time, will
bring more good news for the firms engaged in refining oil.
This means not
that downstream companies are better when the oil price slumps. My research
result of the past decade was that they also lose value and they are highly
volatile.
In 2008, the year of the financial crisis, the portfolio of the best refinery
dividend paying oil stocks lost more than half of its value. After the
sell-off, it tripled its value.
The biggest threat
is in my view the possibility of a political change in the energy sector. Do
politicians want more renewable energy production or put they more money into
jobs and growth via the old systems.
Energy is
definitely the most important sector that benefits when growth should be
created for the economy.
These are the best
dividend picks from the Oil Refinery Industry...
