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Oil has made headlines during this coronavirus crisis, although not for reasons investors want to see. In addition to a lack of demand due to the virus shutdowns, Russia and Saudi Arabia entered a price war that sent the price of WTI crude futures under $12. Yes, the pizza you ordered for dinner last Friday cost more than 1 barrel of oil does at the time of this writing.
But, despite crises forcing the price down, both are hopefully temporary disruptions. Lockdowns won’t last forever and demand for travel will eventually return. The price war between Saudi Arabia and Russia might be vicious now, but neither side wants to see oil prices continue to plummet the way they have so far in 2020.
If you’re betting on an oil rebound, plenty of downtrodden stocks are currently trading at a discount. Here’s a few to keep an eye on.
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Overview: Oil Stocks
Oil companies like ExxonMobil and BP are some of the oldest and largest publicly-traded firms in the market. Despite environmental headwinds, the oil and gas industry is still a multi-trillion dollar business composed of several different subsectors and business models. Oil companies are split into 3 distinct groups based on where they function in the pipeline. The 3 different groups are:
- Upstream: Companies in the upstream subsector are involved in finding oil and pulling it out of the earth. Upstream companies search the globe for new oil reservoirs and assemble drill sites for extraction. Upstream companies often face significant financial hurdles since drilling and mining equipment is cumbersome and expensive. Occidental Petroleum (NYSE: OXY) and Whiting Petroleum (NYSE: WLL) are upstream firms that recently suffered severe debt issues.
- Midstream: Midstream companies are transportation and storage firms. At this part of the process, the raw product needs to be treated, stored and shipped to suppliers. Companies that run pipelines or own oil tankers are often referred to as midstream since they bridge the gap between the drillers and the companies refining and selling the product to the public.
- Downstream: Finally, we have the refiners and suppliers. Downstream companies remove imperfections from the raw product and turn it into engine oil, gasoline, heating oil, etc. Many downstream companies also have operations in the midstream sector as well.
Many of the largest oil companies like ExxonMobil are known as integrated oil producers since they have branches involved in upstream, midstream and downstream operations. When buying oil companies, be sure to understand what sector of the industry they reside in. When prices are as low as they are currently, exploration and drilling companies could struggle under their heavy debt loads.
Best Online Brokers for Oil Stocks
Before investing in any oil stocks, you need to find the right brokerage account for your investments. Most major online discount brokers have access to the oil company shares you’re looking
Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit.
Webull is widely considered one of the best Robinhood alternatives.
- Active traders
- Intermediate traders
- Advanced traders
- Commission-free trading in over 5,000 different stocks and ETFs
- No account maintenance fees or software platform fees
- No charges to open and maintain an account
- Leverage of 4:1 on margin trades made the same day and leverage of 2:1 on trades held overnight
- Intuitive trading platform with technical and fundamental analysis tools
- Does not support trading in mutual funds, bonds or OTC stocks
Moomoo is a commission-free mobile trading app available on Apple, Google and Windows devices. A subsidiary of Futu Holdings Ltd., it’s backed by venture capital affiliates of Matrix, Sequoia, and Tencent (NASDAQ: FUTU). Securities offered by Futu Inc., regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).
Moomoo is another great alternative for Robinhood. This is an outstanding trading platform if you want to dive deep into smart trading. It offers impressive trading tools and opportunities for both new and advanced traders, including advanced charting, pre and post-market trading, international trading, research and analysis tools, and most popular of all, free Level 2 quotes.
Get started right away by downloading Moomoo to your phone, tablet or another mobile device.
- Cost-conscious traders
- Active and Advanced traders
- Free Level 2 market data for all users who open an account
- Commission-free trading in over 5,000 different stocks and ETFs
- Over 8,000 different stocks that can be sold short
- $0 contract fee for trading options, no commission either
- Strong market data and analysis tools with over 50 technical indicators
- Access trading and quotes in pre-market (4 a.m. to 9:30 a.m. ET) and post-market hours (4 p.m. to 8 p.m. ET)
- No minimum deposit to open an account.
- Active trading community with more than 100,000 app users
- No phone or chat support
Cobra Trading is a direct access broker focused on access to short opportunities and order execution. Cobra has multiple short locate sources, giving traders access to the best short opportunities in the market. Cobra Trading also specializes in offering comprehensive, responsive customer service throughout the trading day. We recommend Cobra Trading to high-volume traders and short sellers.
- Short Sellers
- Day Traders and Scalpers
- Traders who are tired of using a “Big Broker”
- Affordable commissions
- The DAS Platform
- Excellent customer service
- No trading under 25K
- Not a self-clearing firm
Charles Schwab is a solid choice for traders of all skill levels. It offers full access to the U.S. equity and options markets as well as 30 international markets. Traders can create a diverse portfolio with $0 commissions and no account minimums. Schwab’s margin trading is expensive but Schwab makes up for it with affordable futures and options trades, along with a comprehensive mobile offering.
- 3 trading platforms perfectly in sync makes matching your platform to your skill level a snap
- Excellent futures trading education for new traders
- $0 account minimum means anyone can start trading
- Wide range of available assets to trade, including futures and 30 global markets
- SmartStreet Edge platform is powerful enough for advanced traders, yet easy enough for new traders to utilize
- Unique educational resources (like infographics and podcasts) make learning fun
- Margin rates are more expensive than competitors
- More limitations on available margin than competitors
- Expensive mutual funds
TradeZero is an online broker and free stock trading platform that provides everything you need to successfully share and trade, including round-the-clock customer support. TradeZero provides four different trading state-of-the-art software programs with its services, a locator for sourcing shares for shorting, commission-free trades, and real-time streaming, to name a few of the features promoted on their website. The software is a unique and (potentially) affordable option for anyone interested in stock trading.
- Traders seeking high transparency and mobility in a stock trading program
- Those attracted to commission-free trades
- Those seeking a free version of a high-quality trading program
- 24/7 live customer support
- Uses ZeroWeb technology, a powerful level 2 online platform with direct market access
- Mobile app allows users to access stocks and trade in real-time while on the go
- Enforces Pattern Day Trading restrictions (accounts need to maintain a daily equity balance of at least $25k)
- Mobile app could offer more features
Robinhood is the broker for traders who want a simple, easy-to-understand layout without all the bells and whistles other brokers offer. Though its trading options and account types are limited, even an absolute beginner can quickly master Robinhood’s intuitive and streamlined platform. On the other hand, more advanced traders might be frustrated by Robinhood’s lack of technical analysis tools, a feature that’s now nearly universal across other platforms.
- Beginner traders
- Mobile traders
- Streamlined, easy-to-understand interface
- Mobile app with full capabilities
- Can buy and sell cryptocurrency
- Almost no trading analysis tools available
- Only taxable brokerage accounts available
- No option to open a retirement account
- No access to mutual funds, forex or futures trading
- Limited customer service
Features to Look for in Oil Stocks
- Manageable debt load: Oil companies are usually burdened with large amounts of debt, especially upstream companies that require expensive equipment to operate. Excessive leverage has already caused a few oil companies to fail so far in 2020 and more will follow if prices continue to crash. Debt is a way of life for oil producers, so make sure the companies you buy can manage theirs.
- Stable dividend: Oil stocks are known for their fat dividends and investors have enjoyed steady income from the industry for years. However, with oil stocks in the bargain bin and no end in sight to the headwinds pressuring the industry, dividends are on the chopping block. Energy firms like Williams Companies (NYSE: WMB) currently sport an 8.8% dividend that’s likely to be slashed in the near future. Don’t chase high dividends when the industry is facing this much uncertainty.
- Sufficient cash reserves: Cash is king, especially when an unrelated crisis has driven demand into the ground. The energy sector is going to see some ugliness in the next few months as cash flow dries up, so companies with extra cash to deploy will be better positioned when the crisis subsides.
Trading Oil Stocks During a Price War
There’s no sugarcoating this — oil is a rough trade right now. Prices keep dropping and there’s pressure on the industry from both short-term and long-term headwinds. On April 20th, the price of WTI futures plummeted 40% in overnight trading alone. Renewable energy was gaining traction before the crisis hit and while cheap oil may boost demand once the world gets back to normal, it becomes a tougher and tougher industry to navigate, especially for capital intensive operations in the Upstream sector.
However, it’s hard to resist buying quality companies when prices reach historic lows like these. Buying oil stocks might seem like a bad idea right now, but if demand snaps back sooner than expected, OPEC’s supply limitations could be effective. Oil won’t stay below $20 a barrel forever and many investors will want to buy in now when reputable companies are trading at such steep discounts. Oil is a finicky industry – be sure to do your homework before investing in a sector facing unprecedented uncertainty.
Continue reading: BEST OIL PENNY STOCKS
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0 Commissions and no deposit minimums. Everyone gets smart tools for smart investing. Webull supports full extended hours trading, which includes full pre-market (4:00 AM - 9:30 AM ET) and after hours (4:00 PM - 8:00 PM ET) sessions. Webull Financial LLC is registered with and regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). It is also a member of the SIPC, which protects (up to $500,000, which includes a $250,000 limit for cash) against the loss of cash and securities held by a customer at a financially-troubled SIPC-member brokerage firm.