Oil prices have been all over the map this year. They cratered following the collapse of Russia's market support agreement with OPEC and the initial impact the COVID-19 outbreak had on demand. However, the world's major oil producers sorted out their differences in a big way, which should help ease some of the supply overhand as the economy starts revving back up now that governments are loosening the restrictions put in place to slow the spread of the virus. Those developments have more investors considering buying oil stocks in hopes of catching a further rebound in crude prices. 

While we see those positives, we've also covered the oil market for years, which has tainted our bullishness a bit. We wouldn't blindly buy oil stocks. Instead, we'd narrow our focus on the best-run options. If we each could only choose one of those to buy, it would be ConocoPhillips (NYSE:COP), HollyFrontier (NYSE:HFC), and Phillips 66 (NYSE:PSX). Here's why they're our top choices these days. 

A drilling rig near some oil pumps with a nice sunset in the background.

Image source: Getty Images.

A well-executed strategy and a conservative approach

Tyler Crowe (HollyFroniter): First, a caveat: I'm not 100% convinced that buying any oil stock right now is a great idea. The demand destruction we have experienced could wreak absolute havoc on balance sheets and send companies into bankruptcy. In that backdrop, it may be best to sit on the sidelines for a bit to see how this shakes out.

But if I were to invest in an oil stock today, I would be looking at refiners right now as well. One that stands out as particularly compelling is HollyFroniter. While the company is considerably smaller than others in this industry, it has two qualities that investors can appreciate right now: good exposure to non-fuel petroleum products such as lubricants and waxes, and a conservative management team that has a reputation for generating high rates of return. 

The fuel business will always be a volatile one. A one- or two-dollar swing in the price difference between a barrel of crude oil and the products it produces can make or break a refiner. While HollyFrontier's management has done a commendable job of sourcing cheap crude oil to improve that price spread, it has also recently invested in non-fuel petroleum products to bring some stability to its earnings. In the past few years, it has acquired several specialty lubricant and petroleum product businesses that have both higher and more consistent margins that gasoline and diesel. According to management's most recent presentation, it expects lubricants and specialty chemicals to represent about 20% of total EBITDA in the long run despite the recent spate of bad results

Just as important is that HollyFrontier has been able to execute an acquisition strategy without compromising its financials. At the end of the most recent quarter, the company had an industry-best net debt-to-capital ratio of 2%. With that much financial flexibility, a diversified portfolio of refining and specialty chemicals, and a management team that has been a good steward of shareholder capital, there isn't much more you could ask for in an oil stock today. 

Avoiding the downside 

Jason Hall (Phillips 66): The current oil shock is unprecedented, creating more volatility in oil prices than ever before. But to expect that oil prices will recover from here and that volatility to go away is a mistake. Shale has changed that, I expect, for as long as oil has commercial value. You can see in this chart how much more volatile oil prices have been over the past dozen years, which largely corresponds to the advent of shale:

WTI Crude Oil Spot Price Chart

WTI Crude Oil Spot Price data by YCharts

Shale can be brought online quickly, a big reason U.S. oil production has skyrocketed. But there's more: Russia and Saudi Arabia have cooperated in recent years to stabilize oil prices, cutting output multiple times while U.S. producers have just pumped more. 

US Crude Oil Field Production Chart

US Crude Oil Field Production data by YCharts

Sure, both fell in line again to stabilize global markets, but my expectation is you won't see these oil giants so quick to prop up prices temporarily, if it means ceding market share to U.S. producers. Saudi Arabia's single-digit cash production costs will redefine oil markets. 

Which brings me back to Phillips 66. As a non-producer, the business has far less downside risk in a future where volatility could wreak havoc in the oil patch. Its refining operations give it a competitive advantage to generate higher margins, while its midstream and petrochemicals businesses are focused on natural gas, not oil. Rounding things out, it has a top management team and a strong balance sheet 

Put it all together, and you have a business that's focused on the best places to make money in the oil patch, while protected from the most dangerous. It gets my nod without a second thought. 

Built for volatility

Matt DiLallo (ConocoPhillips): ConocoPhillips has evolved since the last oil market downturn in 2014. It made two fundamental changes over the past few years. First, it reshaped its portfolio to focus on its lowest-cost resources. That led it to sell off higher-cost assets so that it could concentrate on those with the best economics. Second, it used the proceeds from asset sales to build a fortress-like balance sheet.

That strategy shift put the company in an excellent position to navigate through the current downturn in the oil market. Most of its resources can make money at less than $30 a barrel, which is helping cushion the blow of lower oil prices. Meanwhile, it has the second-lowest leverage ratio in its peer group to go along with more than $8 billion of cash. That gives it the financial flexibility to weather this storm. It's one of a shrinking list of oil companies that hasn't reduced its dividend during this downturn.

The company's successful strategy was on full display during the first quarter. It delivered better-than-expected results as its low-cost business model paid dividends. Meanwhile, it's using the flexibility of its balance sheet and portfolio to hold back some supply until oil prices improve. The company's adaptability to changes in the oil market is why it's the only oil producer I'd buy.