Since the beginning of the year, the oil market has fluctuated between $50 and $60 per barrel.
There were times when the price was high and times when the price was low. But now that 2018 is at its halfway point, oil prices appear to have found a level, which could potentially signal a turn for the better.
A barrel of crude oil was trading on the NYMEX at $54.76 per barrel as of 12:00 noon on Thursday, which is up 0.5% from the previous day’s price.
Ahead of the 2020 presidential election, the price change comes at a critical moment for oil stocks. Between the end of 2019 and the beginning of this year, the benchmark S&P 500 stock index rose 15%. Since then, as our friends at Investopedia.com point out, “the energy sector has lagged behind.”
Why Is Oil Price Important?
As a fossil fuel, oil is necessary for a variety of reasons. First, it serves as a transport fuel and as such plays an important role in the modern world. Second, it is a raw material that is necessary for making a number of other fuels and products, such as plastics, dyes, and fertilizers.
Though demand for crude oil has decreased in recent years, it still serves as a barometer for the state of the economy. When the price rises, investors typically flock to safer, higher-yielding stocks in the energy sector, while when the price drops, investors tend to shy away from these types of investments.
What Is The Difference Between A Barrel And A Ton?
A barrel is a unit of volume that is conventionally used to measure oil. One barrel contains exactly 42 gallons (159 liters) of oil. Before the modern era, barrels were used to store and transport oil, and as a result, many cities are still measured in miles rather than kilometers.
In contrast, a ton is a unit of mass. One ton contains exactly 100 kg of any element or compound. In the case of oil, there are 1,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000 kg in a single ton of crude oil.
When Will We See Widespread Pumping At New Wells?
With the current rig count at 940, the oil industry is still experiencing strong activity, which is somewhat of a rebound from 2017 and 2018. Last year, there were 882 rigs operating in the U.S., which was a 12% decline from 2016. But even with the decline, there were still more rigs operating in the U.S. than at any time since the 1950s. This year, however, the drilling activity has leveled off as oil prices have stabilized and even risen a bit in some areas.
There are a number of factors that could explain the drilling slowdown. First, the rig count is made up of both operating and drilling rigs. An operating rig is one that is ready to drill and can be mobilized in hours, while a drilling rig is one that is still undergoing preparation for drilling and requires several days or weeks to set up. Second, commodity prices have increased, which has encouraged operators to retain more rigs given the high cost of capital. Third, while the demand for oil has decreased in recent years, as economic growth has shifted to higher-efficiency forms of energy, such as solar and wind power, there has been a push by cities and towns to reduce their dependence on fossil fuels and become more energy-independent. For example, many American towns and cities have moved to bank-owned energy storage systems made up of Tesla Powerwalls and Chevy Volts to take the strain off the electric grid. These systems allow the local energy authorities to store excess electricity when it’s generated by solar power during the day and release it when the electricity is needed.
Where Can I Invest Overseas To Get A Discount On Imported Oil?
The Middle East is the biggest supplier of crude oil and natural gas liquids to the world market. In fact, the region is the second-largest oil-exporting region behind only the U.S. But even with the recent economic troubles and political uncertainty in the Middle East, there are still plenty of opportunities for those seeking to invest there.
One of the best places to invest in oil is in the so-called second-tier markets. These are locations where crude oil is sold at a discount to the prices in the world market. Examples include Canada, the U.K., and a number of European countries. In some cases, such as the U.K., the discount can be up to $10 per barrel or more.
With Canada currently enjoying record-breaking temperatures, it has become a popular place for those seeking warmth and a place to avoid the crowds. August 2018 was the country’s hottest month on record, and the warm weather has drawn tourists from all over the world. As a result, Canada has seen an increase in the number of travel agents specializing in packages to escape the cold.
Which Oil Stock To Buy?
Since the price of crude oil began to rise last year, a number of energy-related stocks have gained in value. In fact, the price of a barrel of crude oil is now only slightly below its 2016 level. As a result, a select group of oil-related stocks, including Chevron Corp. (NYSE: CVX), Exxon Mobil Corp. (NYSE: XOM), and Royal Dutch Shell plc (NYSE: RDS.B), have experienced an increase in value of about 25%.
But the recent rise in oil prices has not transferred to the whole sector. One of the best-performing S&P 500 stocks in August was actually Marathon Petroleum Corp. (NYSE: MPC), up 125%. Though Marathon Petroleum is a major oil company, it operates in a highly regulated industry and doesn’t have the same amount of wiggle room that many of its peers do. Marathon Petroleum had been one of the best-performing energy stocks in 2019, rising 71% so far this year.
The bottom line is that while the oil price has risen, it has not risen by as much as many crude oil stocks, which means there is still a lot of room for growth. On the other hand, the price of a barrel of crude oil doesn’t seem to have suffered as much as other energy-related stocks, which could mean that there is less risk of a major upside surprise.