After years of record-breaking highs, crude oil is trading at much lower prices. Lower demand has held energy stocks back a bit, and investors with long-term strategies should definitely consider getting into the oil sector. Below, investors can learn five reasons why they should invest in oil stocks.
The power of dividends over 3% cannot be understated, and these yields are quite common for many oil stocks. From huge oil companies such as Chevron, to dividend-rich depletion trusts that offer fluctuating dividends, there are many great plays in today’s energy sector. When oil prices rise, these dividends will only get bigger.
Demand and Future Growth
While the demand for crude oil hasn’t surged, investors should not confuse downward estimate revisions with a decrease in need. The International Energy Agency Says that demand will continue to rise. This baseline demand should give investors plenty of incentive to buy into the market now before oil prices increase.
OPEC Cutting Production
A recent increase in production by OPEC was just a stopgap strategy, according to the experts. While member states helped out, they clearly have no interest in putting out crude when prices remain relatively low.
Unrest in the Middle East
As the slight increase in oil prices has shown, a premium has been priced into the oil market due to continued unrest in the Middle East. Upheavals in Syria, Libya, Tunisia, Egypt and Yemen may have a destabilizing effect on the global energy market. With uncertainty typically comes higher oil prices. Therefore, the time to get into the oil market is now, before prices increase.
A Weakening Dollar
Investors should be aware of the relationship between the US dollar and the price of oil. As the dollar increases in value, the price of commodities such as crude oil will fall. With America’s free-spending ways and low interest rates, the dollar’s relative strength will eventually erode, which makes it important to get into the market before that happens.
There are many reasons to invest in oil and energy stocks, and some of the most important are listed above. For more investment advice, get information from this page or consult a local broker.