Buying oil stocks can yield impressive returns or severe losses, so knowing the best time to purchase or sell is important for investing success. The health of the oil industry is contingent on a number of factors ranging from political stability and market accessibility to general economic activity. There are specific events that trigger buying and selling in the markets, and knowing how to react is a key for wealth preservation and generation.
Strong Retail Sales
Strong economies tend to increase the demand for oil and gas and have the power to send oil stocks higher. If there are reports of strong retail sales, it points toward a surge in economic activity. Many investors choose to buy oil stocks when retail sales are on the uptick because retailers must ship products to their stores or directly to their customers’ homes, which drives up the demand for gas. If oil stocks have risen due to increased economic activity, it is also a good time to sell stocks and bank the gains.
Some nations do not allow private companies to compete and sell gas to the public. Rather, their oil and gas industry is heavily regulated and controlled by the government. However, if a country’s leadership decides to open up the market, this has the potential to send oil stocks higher. This is because oil companies will have the opportunity to expand operations and generate more revenues. In December 2013, the Mexican government decided to allow private companies to enter Mexico's energy market. Events like this present investors with a buying opportunity.
If a solely domestic oil production company finds new markets for its products abroad, the company has the potential to grow and deliver favorable returns to investors. The dynamics of world oil production are constantly changing, making it hard to gauge the prospects of companies exporting to foreign countries. Sanctions against Iran and other oil producing states have a significant impact on the price of oil and how much particular companies make. Increases and decreases in exports are indicators of buy and sell opportunities.
Political strife can disrupt oil production and supply. For instance, the Syrian Civil War impacted oil prices and the ability of nations to trade with one another. As a result of armed conflicts, an oil company’s profits can rise and fall based on access to oil fields and oil buyers. Investors need to watch the political climate in North America, Europe and The Middle East carefully to gauge the practicality of specific stock positions and sell if necessary.
- The Wall Street Journal: U.S. Crude Oil Futures Settle Higher
- The Wall Street Journal: Mexico Congress Passes Historic Energy Bill
- The Wall Street Journal: Exxon Presses for Exports
- MarketWatch: Investors urged to ‘stay patient’ with energy stocks
- Los Angeles Times: Syria Conflict Causes Crude Oil Prices to Rise, Stocks to Tumble
Joseph DeBenedetti is a financial writer with corporate accounting and quality assurance experience. He writes extensively online with an emphasis on current trends in finance. As a Quality Assurance Analyst, he honed his technical writing skills creating standard operating instructions for a consumer finance organization.