Think rising oil prices are here to stay? Top 3 stocks to consider buying right now

Rising oil prices remind investors of the importance of this key commodity. Despite all the talk about renewable energy, the world still relies heavily on oil and gas for its energy needs. Oil and gas stocks have generated handsome returns for investors over the decades.

Let’s discuss some key factors influencing oil prices lately, along with the top three oil stocks — ExxonMobil (XOM -0.75% ), Enbridge (IN B -0.20% )and Enterprise Product Partners (EPD -0.31% ) — consider buying now.

Oil inventories fell to their lowest level in a decade

Many factors affect world crude oil prices. This makes forecasting oil prices a difficult task. Still, an understanding of some key indicators helps you understand oil price movements. For starters, crude oil refinery inputs continue to recover after a sharp decline in 2020 when the coronavirus pandemic strangled demand for petroleum products.

US crude inputs used by refinery data by YCharts.

According to the US Energy Information Administration, gross refinery inputs averaged 15.97 million barrels per day (BPD) for the week ending March 4. While this is still below pre-pandemic levels, it has increased significantly from 2020 lows.

U.S. crude oil inventories stand at 989 million barrels, the lowest levels in more than a decade. When production and imports are lower than demand, crude oil inventories run out. Clearly, falling oil inventories are bullish for oil prices.

United States Crude Oil Field Production Chart

U.S. crude oil field production data by YCharts.

With growing demand and prices, oil producers are slowly increasing production, although it is still at a much lower level than in 2019. Lower capital spending by producers in recent years has left the undersupplied oil market, contributing to higher prices. As the chart above shows, imports are also slowly increasing to meet growing demand from refineries.

In short, all of the above indicators are bullish for oil prices. However, it is important to note that these are not the only factors driving oil prices – and this is where the uncertainty creeps in. Several other factors affect crude oil prices – OPEC (Organization of the Petroleum Exporting Countries) policies, geopolitical factors such as Iran sanctions, Russian-Ukrainian war, etc. Obviously, no one can control or predict these factors. Even in normal times, OPEC is seen as a wild card, and disputes or disagreements between OPEC countries, as well as unclear policies, often lead to uncertain oil markets.

Two engineers are talking while looking at papers and a laptop, with an oil refinery in the background.

Image source: Getty Images.

That’s why it makes sense to invest in stocks that can generate handsome income for you, regardless of the price of oil. Enbridge and Enterprise Products agree here. In comparison, ExxonMobil gives you significant exposure to oil prices, helping you capture the upside when prices rise. At the same time, as a huge and diversified company with operations ranging from exploration to refining, ExxonMobil is better protected in oil bear markets compared to smaller pure-play exploration and production operators.

Diversified oil major: ExxonMobil

With operations dating back more than a century, ExxonMobil is one of the best-known oil companies in the world. It has drawn the ire of investors in 2020 for its high capital spending in a bear market that has led to rising debt levels as well as underinvestment in renewable energy. ExxonMobil also decided to maintain its dividend, further inflating its debt.

However, as oil demand slowly returned and oil prices strengthened, ExxonMobil treated the debt issue as a priority. In 2021, he paid off $20 billion in debt. The company believes that targeted investments during the bear cycle allowed it to reap profits when markets rallied. This allowed it to generate $23 billion in revenue in 2021, the highest of the competition. Exxon also launched a $10 billion share buyback program.

ExxonMobil’s commitment to its dividend, despite an extremely difficult market, is what attracts income investors to the stock. Notably, the company’s aggressive use of debt, as well as its reliance on oil prices, make its stock volatile.

Canadian pipeline operator: Enbridge

Enbridge has been generating stable cash flow for years. The Company primarily operates liquids and natural gas pipelines. Capacity on Enbridge’s liquids pipelines is generally in high demand, due to limited transportation capacity to move Canadian oil sands oil to refineries along the Gulf Coast. At the same time, its regulated gas transmission and distribution business generates stable cash flows comparable to those of utilities.

Enbridge’s stable cash flow has allowed the company to increase its dividend for 27 consecutive years. The company continues to find growth opportunities and has approximately C$10 billion worth of capital projects in service in 2021. Enbridge expects its capital projects to support 5% to 7% compound annual growth in its flows of distributable cash per share from 2021 to 2024. means investors can expect stable income from this high-dividend stock in years to come.

Middle giant: Enterprise Products Partners

With 23 consecutive years of distribution growth, Enterprise Products Partners offers an attractive opportunity for investors seeking income. It operates more than 50,000 miles of liquids and gas lines. It is also involved in the processing and fractionation of gas as well as the export and import of energy products. Enterprise Products’ diverse and strategically located assets, profitable business, strong balance sheet and experienced management are some of the key factors that give it an edge over its smaller counterparts.

Enterprise Products Partners has one of the strongest balance sheets among oil companies. Its debt-to-EBITDA (earnings before interest, tax, depreciation and amortization) ratio over the last twelve months is healthy at 3.6 times. The ratio indicates a company’s ability to repay its debts. A lower ratio is considered better.

Enterprise Products Partners’ strong balance sheet positions it well for acquisitions to fuel growth. The company recently acquired Navitas Midstream Partners, which strengthens its position in the Midland Basin, a leading oil-producing region in Texas. Overall, Enterprise Products Partners is a top stock to add to your energy portfolio.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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