2 Important Reminders for Investors as Crude Oil's Price Remains Volatile

Academics will tell you that Wall Street is efficient. Wall Street practitioners will tell you that over short periods of time, investors can be highly irrational. The problem is usually human emotions, which are running high right now in the energy sector due to the geopolitical conflict in the Middle East. Here are two reminders for investors as oil prices remain volatile.

1. Oil and natural gas have always been volatile commodities

Oil prices are hovering near $100 per barrel. That has investors worried, but oil prices have been this high, and higher, before. The world has survived, and the energy sector has adjusted. Historically, oil prices have fallen after every spike. It is a normal cycle in the energy patch, with oil prices rising and falling on a fairly regular basis. Sometimes the moves are large and happen very quickly.

Image source: Getty Images.

That’s not meant to diminish the very real geopolitical conflict in the Middle East. It is meant to highlight the need to view the oil and natural gas industry through a long-term lens. Most investors should try to invest in companies that have proven they can survive and thrive through the entire energy cycle, not just the upside.

That generally means a focus on integrated energy giants like ExxonMobil (XOM +0.36%). Exxon owns a global portfolio of assets across the entire energy value chain, which helps soften the impact of the normal swings in oil prices. Exxon is also notable for its financial strength, as it has the lowest debt-to-equity ratio among its closest peers. That gives the company the latitude to take on debt to help it muddle through difficult periods.

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NYSE: XOM

ExxonMobil

Today’s Change

(0.36%) $0.57

Current Price

$158.16

Key Data Points

Market Cap

$657B

Day’s Range

$154.84 - $159.56

52wk Range

$97.80 - $160.45

Volume

27M

Avg Vol

21M

Gross Margin

21.56%

Dividend Yield

2.56%

2. You can sidestep commodity prices

The strength of Exxon’s business model is highlighted by its multi-decade streak of annual dividend increases. Midstream-focused Enterprise Products Partners (EPD +1.11%) also has an impressive streak of distribution increases, currently 27 years long. That’s basically as long as Enterprise has been publicly traded.

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NYSE: EPD

Enterprise Products Partners

Today’s Change

(1.11%) $0.41

Current Price

$37.45

Key Data Points

Market Cap

$80B

Day’s Range

$37.11 - $37.65

52wk Range

$27.77 - $38.22

Volume

2.9M

Avg Vol

4.4M

Gross Margin

12.86%

Dividend Yield

5.87%

Enterprise built that streak not by being diversified, but by being focused on owning the energy infrastructure that helps move oil and natural gas around the world. It is a fee-based business, so the volume of energy moving through Enterprise’s systems is more important than the price of the commodities it is moving. Owning this North American pipeline giant would allow you to invest in the energy sector without taking on the commodity risk of an oil producer.

You should have exposure to the energy sector

Given the importance of energy to the global economy, most investors should have exposure to the sector. However, it is important to take a long-term view and focus your investments on businesses you can hold through the entire energy cycle. Exxon and Enterprise, with dividend yields of 2.5% and 5.7%, respectively, will be good jumping-off points for most investors.