Investing in Oil and Gas Stocks Basics

There are many different business sectors that one can choose to invest in. One of these is oil and gas. While solar and wind energy are hot topics today, there is still a big demand worldwide for both oil and gas that cannot be denied. Today, we would like to briefly introduce investing in oil and gas stocks.

Oil is that liquid petroleum product that comes out of the ground, called “black gold” in the movies. Often oil is transported by pipeline, but it can also be transported by truck, in tanker cars by rail, and by ship, easily enough. Because oil can be shipped easily in several ways, it is a world market, and the price of oil is influenced in part by OPEC. While each oil company should always be evaluated on its own, most oil stocks usually track a well-known reference price for oil called WTI or West Texas Intermediate, published daily.

Natural gas is a little different. Most worldwide natural gas is transported by pipeline, although a small percentage is pressurized and transported as a liquid in tanks. What that means is the price of natural gas dues not fluctuate exactly like the price of oil does. In western Canada, the reference price for natural gas that most people refer to is in (Canadian) dollars per GJ or gigajoule at AECO-C which is a big storage facility.

To complicate matters, oil and gas companies are often divided into three broad categories: upstream, midstream, and downstream. The upstream ones do the exploration and drilling, midstream ones do transportation, storage, and marketing (mostly) and downstream ones refer to the big refineries, for example, that prepare the product for the end market, like jet fuel for an airline. Some companies specialize in one petroleum product and some handle several. There are also natural gas liquids (NGLs) and sulphur from sour gas wells.

Another way to invest in oil and gas is through Exchange Traded Funds or ETFs. ETFs exist for different market sectors and the petroleums ones function like collections of different petroleum instruments such as stocks and commodities. Investing in an ETF spreads your risk over many related products compared to just one company.

If oil and gas is something that interests you, get in touch with us to discuss your options. The oil and gas sector will continue to be important for many years to come.

Noah Belcher is an Investment Advisor with iA Private Wealth Inc., and is a CERTIFIED FINANCIAL PLANNER® professional and a Chartered Investment Manager (CIM®), who helps his clients achieve their financial goals and objectives. He offers personalized solutions and stellar customer service to clients with complex tax profiles who require top-notch advice.

If you have any questions about this article or would like to talk to him about your financial profile, call his office at  (604) 535-3454.

This information has been prepared by Noah Belcher who is an Investment Advisor with iA Private Wealth Inc. Opinions expressed in this article are those of the Investment Advisor only and do not necessarily reflect those of iA Private Wealth. The information contained herein may not apply to all types of investors.  iA private Wealth Inc., is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.