Should we buy oil stocks as they are at rock bottom?

Firstly, it’s the May WTI contract that was selling for such a low price. Investors were forced to sell due to no storage and because WTI crude futures settle in actual barrels of oil, not cash. Thus, we had a huge sell-off and Brent was not as affected because it settles in cash. The June contract is significantly higher than May (see image below). As well, many stocks, including oil, fell due to the coronavirus. It wasn’t just oil.

And if you want to learn more about the crash, in particular, you can read the answer on my page on why WTI fell below zero.

Image Source:

I am personally on the fence about oil. I removed it from my portfolio entirely in 2017. At this point in time, I do not think I will add any oil investments as the risk to me is high. The only way I will have exposure to oil is through index ETFs. That said, If you’re looking for a short term play to take advantage of the crash, it’s certainly a great time. But be careful. There will be bankruptcies and some companies will not return. Others will be bailed out. You need to do your research on what companies to invest in, or you can simply buy oil futures or an ETF that tracks oil. Now, if you want to buy oil (or oil companies) for the long term then look at it from this perspective:

These are just some examples of why I’m on the fence and not in oil anymore. I don’t believe oil dependency will be gone in our lifetime, but there is a chance the sex appeal of it will never return and I think this all makes it risky in the longterm.

And here’s oil revenue stacked up against others:

The revenues in oil are staggering! They still make more than the top tech companies but Walmart is still on top. Cool fact: Walmart and Sinopec are the #1 and #2 largest companies by revenue in the world.

Revenue source: Reuters and Google

Bill Gates also stated that the fossil fuel divestment movement won’t do much to combat damage to the environment. This may or may not help oil stocks.

Bill Gates calls fossil fuel divestment a ‘false solution’



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