Petroleum: Investing Essentials

A primer on investing in the petroleum industry.

Aug 12, 2014 at 12:00AM

Petroleum has played a role in society for eons with evidence found that petroleum was used as far back as ancient Babylon to make asphalt for building walls and towers. Ancient tablets from Persia indicate that petroleum was used for medicinal purposes and for lighting. Today we use petroleum-based products for everything from fueling our cars to manufacturing plastic.

Petroleum Industry Well

Photo credit: Flickr user Justin Vidamo

What is petroleum?

Petroleum is a Latin word that combines the word petra, or rock, with oleum, or oil, giving it the meaning of rock oil. Petroleum refers to the liquid mixture of hydrocarbons in the ground, as well as petroleum-based products. It's a broad term that also encompasses gasoline, kerosene, heating oil, asphalt, and other refined petroleum products.

How big is the petroleum industry?

The petroleum industry refers to everything from exploration to find sources of hydrocarbons, to oil refining, to the marketing of gasoline to consumers or petroleum feedstock to the chemical industry. The petroleum industry is vital to modern society. It provides the transportation fuel we need each day, as well as the raw materials to make everything from pharmaceuticals to fertilizers.

Roughly 90 million barrels of oil are used each and every day around the world. More than 18 million barrels are used daily in the U.S. alone, with about 8 million employed in making gasoline. Taking things down to a personal level, the average American each month will use 1.8 barrels of oil, which is about 75 gallons.

How does the petroleum industry work?

The petroleum industry is structured into upstream, midstream, and downstream sectors. Upstream refers to the companies engaged in the exploration and production of petroleum. Independent oil and gas companies typically only engage in upstream activities. Midstream refers to the companies that pipe and process raw petroleum and refined petroleum products. Master limited partnerships are common owners of midstream assets. Finally, downstream refers to the companies that refine petroleum products to turn it into useful products, as well as the companies that sell these products. Refiners, petrochemical manufacturers, and retail gas stations are all downstream operations of the petroleum industry.

Petroleum Industry Motor Oil

One of the many products produced by the petroleum industry. 

The petroleum industry's infrastructure in the U.S. is vast. According to the American Fuel & Petrochemical Manufacturers,144 refineries; 200,000 miles of crude oil and refined petroleum product pipelines; and thousands of railcars, barges, and tanker trucks are used to move petroleum products around the country. Because the industry is so vast and has so many parts, it offers an array of investment opportunities.

A major integrated oil company such as ExxonMobil (NYSE:XOM), for example, does everything from explore for oil and gas to produce synthetic motor oil for vehicles. ExxonMobil and its peers would be an option for investors looking for broad petroleum industry exposure. However, investors can also invest directly in companies that are solely focused on exploring for oil and gas, or even companies that only own retail gas stations. The investment opportunities within the petroleum industry come in all sizes and risk profiles.

What drives the petroleum industry?

The transportation industry is one of the biggest drivers of the petroleum industry. The United States, for example, uses 18 million barrels of oil per day, with just over 8 million of those barrels used to make gasoline, or 46% of petroleum demand. That said, Americans are driving less and gasoline demand is down more than 6% from its peak in 2007. A focus on fuel efficiency and the lingering effects of the Great Recession have had a noticeable impact on gasoline demand in the U.S.

However, demand for the petroleum industry's products is expected to grow elsewhere in the world. Global demand for transportation fuel is projected to grow by 40% through 2040. Demand for diesel is expected to outpace demand for gasoline, as the following chart illustrates.

Petroleum Industry Demand

Source: ExxonMobil Investor Presentation. 

Meanwhile, demand in the petrochemical industry is expected to rise from about 150 million metric tons per year to nearly 250 million metric tons, with about two-thirds of that growth coming from Asia.

Even amid the growth of renewable energy options, the petroleum industry's future is very strong. Emerging markets will be a big driver of demand going forward, as petroleum will remain key to fueling cars and commercial vehicles, as well as in meeting growing demand for petrochemicals. The industry offers investors a wealth of opportunities, from small petroleum producers to major integrated energy companies.


Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers