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Bottom Fishing For Oil Stocks? Stick To The U.S.

Making any assumption about the price of oil right now is risky, or some might even say crazy. Still, with WTI having found at least a temporary bottom around $50 and with an agreement to cut production by OPEC and the other signatories to the previous such deal looking on the cards, many will no doubt be considering oil stocks. They would almost certainly benefit from a recovery in price should a deal be announced, but there is also another reason energy stocks make sense at these levels. The drop in those stocks, and in oil itself, has been largely about pricing in risk, so it is reasonable to assume that said risk is now accounted for, which limits the downside. Of course, there is still risk to be considered though, and the normal way of reducing that risk, buying the large, integrated multinationals, may not be the best strategy this time.

The theory behind that strategy is sound. Companies like Exxon Mobil are not just involved in oil production. They also refine, distribute and retail oil and its derivatives which gives them some degree of cushion against price volatility. The point here though is that if you are thinking about buying the sector at all, you have to believe that crude is going to recover, or at least is not going much lower. That obviously negates one reason for buying the big firms’ stock, and the other, that international exposure also lessens risk, is even less convincing when you consider the evidence.

U.S. stocks have been volatile…


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