My strategy on energy stocks

Oil prices have rebounded post-pandemic.

Oil prices have staged a rapid recovery since the biggest crisis to strike the energy industry in decades.

The Organization of the Petroleum Exporting Countries and its allies stepped in last spring to backstop the market by slashing production in the teeth of a collapse in crude prices. This week, the cartel is expected to reach a deal on unwinding some of those cuts.

Wall Street Journal

All the stocks in my portfolio did well during the downturn in 2020 even while the price of oil plummeted. This happened because I’m not heavily invested in the production of oil but in the industry that hold it.

About 9% of my holdings are in companies involved in oil and gas storage and transportation. In total I hold 9 different companies each totaling about 1% of my portfolio. Two of the companies, Exxon and Chevron, are in the energy production business but the rest are storage and transportation.

I don’t invest in new or emerging energy sources like wind or solar. I view those as largely government projects that are for growth stock investors. I prefer the established industry that will be around long after I’m dead.

The world might push toward moving away from fossil fuels but I don’t think we’re going to get there anytime soon. Cars may turn electric but that won’t stop oil from being necessary for a car. Gasoline is only a portion of our uses for oil. Petroleum is in just about everything we use every day.

Once extracted, crude oil undergoes distillation. This process breaks the liquid down into various products of different weight, depending on the exact composition of the liquid. The largest share of crude is used for energy carriers that can be combined into gasoline, jet fuel, diesel, and heating oils.

Heavier products are used to make tar, asphalt, paraffin wax, and lubricating oils. Various chemicals can be derived from the liquid as well, including sulfur, petroleum coke, and petrochemicals. Besides the products directly derived from the crude oil, there are over 6000 items derived from petroleum byproducts. Some examples include fertilizer, perfume, insecticides, soap, and vitamin capsules.

Kendrick Oil (not a stock I own)

It will take hundreds and perhaps thousands of years to find substitute products. Storage of oil will be a priority because its the only way to get it into the market quickly. Just in time production of oil will never be successful. It takes too long to get it out of the ground.

Image by Monika Wrangel from Pixabay