Please ensure Javascript is enabled for purposes of website accessibility

Don't Hurt Yourself by Dumping Energy

By David Smith - Updated Apr 5, 2017 at 8:03PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

While oil prices have plummeted, you should still a position in energy.

Things happen quickly these days. It was about a year ago that I wrote to my Foolish friends about the daunting prospect of oil rising to $100. That was also little more than six months before the price topped out in July at $147 a barrel.

During that time, natural gas prices had begun to follow their crude brethren northward, propelling the likes of Chesapeake (NYSE:CHK), Devon (NYSE:DVN) and XTO (NYSE:XTO) on a steep climb upward. In the process, there arose all sorts of excitement about the possibilities for unconventional gas plays such as the Barnett Shale in North Texas, the Haynesville Shale on the Texas-Louisiana-Arkansas border, and Canada's Montney Shale in British Columbia.

The world today looks dramatically different. Crude prices are down 70% from their highs, and with commodities prices and the global credit crunch working in tandem, the domestic independents are scratching for development funds. As a result, energy investment attention has refocused on the big guys, like ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), and ConocoPhillips (NYSE:COP).

At this point, I can't tell you whether crude will be at $30, $80, or even $200 a barrel in, say, 18 months. Indeed, lots of observers thought the run-up in the first half of this year would continue, perhaps touching $200 in the near term. Conversely, it's easy to forget that a decade ago, in 1998, the average inflation adjusted price of oil barely topped $15.

So oil and gas clearly haven't shed their cyclicality. As such, it'd be wise for Fools to keep a few things in mind:

  • OPEC is something of a mixed bag. Kingpin Saudi Arabia is able to get by on far lower prices than, say, Iran and Venezuela. Nevertheless, the group will meet next week in a session that probably will involve another production cut.
  • Russia is more and more teaming up with the cartel, together accounting for about half the world's production. The country also needs higher oil prices for economic stability.
  • With a number of global oil and gas projects -- especially expensive Canadian oil sands efforts -- on hold in the face of deteriorating commodities prices, I'm betting that slowing production will cause prices to reverse themselves sooner than generally is expected.

So the world of energy remains chaotic. One thing I'm certain of, however, is that Foolish portfolios should include representation in the sector. My favorites among the members of Big Oil, which I think currently makes the most sense, are ExxonMobil, with its flush balance sheet, including over $38 billion in cash and short term investments, and BP (NYSE:BP), which has overcome a number of difficulties during the past couple of years and will start you off with a 7.70% dividend yield.

More oily and crude Foolishness:

ChesapeakeEnergy is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor David Lee Smith does own shares in XTO, but not in the other companies mentioned. He does welcome your questions or comments. The Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Exxon Mobil Corporation Stock Quote
Exxon Mobil Corporation
XOM
$91.45 (0.95%) $0.86
BP p.l.c. Stock Quote
BP p.l.c.
BP
$30.80 (0.75%) $0.23
Chevron Corporation Stock Quote
Chevron Corporation
CVX
$155.82 (0.26%) $0.41
ConocoPhillips Stock Quote
ConocoPhillips
COP
$95.98 (0.49%) $0.47
Chesapeake Energy Corporation Stock Quote
Chesapeake Energy Corporation
CHKA.Q
Devon Energy Corporation Stock Quote
Devon Energy Corporation
DVN
$60.05 (1.71%) $1.01
XTO Energy Inc. Stock Quote
XTO Energy Inc.
XTO.DL

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
373%
 
S&P 500 Returns
122%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/10/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.