Last week, the Biden Administration announced a massive, long-term (up to six months) plan to release a million barrels of crude oil per day out of the Strategic Petroleum Reserve. On that news, the WTI oil price “tumbled” from $108 to $104 per barrel
While I don’t think the move will bring energy prices back down to 2021 levels, it may give some price stability. More stable energy prices mean that investors need to rethink their energy sector investments.
On January 20, 2021, the day Biden was sworn into office, WTI crude oil traded for $53.16 per barrel. By the end of 2021, the price was up to $75.33, and in early 2022, the Russian invasion of Ukraine pushed a barrel of oil to over $120. At the end of March, WTI crude trades for a few dollars over $100. During the first 14 months of the new administration, the price of oil almost doubled.
Investors who bought energy producers in late 2020 or early 2021 have seen tremendous share price gains. In March 2021, I added upstream producer Devon Energy (DVN) to my Monthly Dividend Multiplier service portfolio. Devon closed out the year as the top-performing stock in the S&P 500, and its share price is up 144% since my initial recommendation.
However, for this year, the average prediction by industry experts looks for oil to close out the year at $93 per barrel. I have told my subscribers that I think oil will trade in an $80 to $100 range for the rest of the year. Stable energy prices change how you should view your energy sector investments.
Counting on share price appreciation may not be the correct strategy.
However, upstream energy producers will remain hugely profitable. The average upstream company needs $34 per barrel to profitably operate an existing well and $56 per barrel to drill a new well.
For the rest of the year, your energy sector investments should focus on those companies committed to paying attractive dividends. Devon Energy remains an attractive hold with its fixed-plus-variable dividend policy. Warren Buffett’s favorite, Occidental Petroleum (OXY), recently increased its dividend by more than 1,000%, going from a penny a share to $0.13. Coterra Energy (CTRA) is a smaller cap upstream producer that also pays a fixed-plus-variable dividend.
Energy midstream companies – the pipeline, storage, and terminal operators – offer high yields and should also benefit from higher energy prices. After slashing its dividend by 50% at the start of the pandemic, large-cap pipeline company Energy Transfer LP (ET) in January increased the dividend by 15%. ET currently yields 6.1%, and investors can expect continued dividend growth.
High crude oil and natural gas prices also make for attractive, sustainable, and profitable renewable energy investments. I have hosted the management team from the Regulation A+ solar energy company Energea to webinars for my Dividend Hunter subscribers in the past.
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