Grizzle put out a warning April 3rd that oil was going lower.

Now that oil has hit an all-time record low of NEGATIVE $43 per barrel, its time to buy-in.

We explain why you need to buy the stocks, not the commodity and the names we like.


Oil Futures Curve is Still Positive Except for This Month

Oil prices aren’t really negative, only this month’s futures contract is negative.

Oil is traded through contracts that allow buyers and sellers to buy or sell oil in advance.

Delivery of the oil doesn’t need to happen until the contract expires.

With the most recent contract expiring tomorrow (Tuesday), traders who own a futures contract absolutely do not want to take possession of oil because all the storage tanks are full.

The lack of options is why traders are having to offer money to others to buy their futures contract and accept the physical oil tomorrow.

This is why oil is trading for a negative number.

All Oil Stocks Underperforming the Market

Our favorite way to play the oil rebound theme is with Exxon Mobil (NYSE: XOM), Enterprise Product Partners (NYSE: EPD) and Suncor for Canadian investors (TSE:SU).

Enterprise is ONLY for U.S. Investors for tax reasons so if you don’t live in the states, don’t but that one.

Suncor we like far less than Exxon due to a high exposure to heavy oil.

Heavy oil is harder to refine into gasoline and more expensive to get out of the ground than lighter grades of oil making it a far inferior product.

With far too much light oil floating around already, demand for the oil Suncor produces is on a long term decline to almost nothing.

However, Suncor has very little debt and a big dividend yield, giving it a pretty good chance of performing well as oil goes back to a normal price.

There is no reason to buy small, dying Canadian oil stocks when you can own long dated options on stocks like Suncor with far less risk and still solid upside.

Our preferred way to invest in oil stocks is by buying LEAPS, which are call options that expire in 2022. This gives us lots of time for oil to rebound and the stocks to go up, plus we get the added leverage of options to magnify our return above and beyond what we would get from owning the stock.  

XOM, EPD and SU Sporting Juicy Dividend Rates

All three of these stocks have low enough debt levels that they can muddle through this bloodbath in oil prices.

There is also only a small risk they cut their dividends.

The dividend is extremely important to each stock’s investor base and management is going to try every other option before they cut the dividend.

Plus Debt Levels are Manageable

Two other slightly riskier stocks with greater upside are the leading oilfield service company’s Halliburton (NYSE:HAL) and Schlumberger (NYSE:SLB).

If you want to get oil out of the ground anywhere in the world you really only have three company’s you can hire to do it for you and Halliburton and Schlumberger are the top two of the three.

Their debt is low enough to avoid going bankrupt even with oil this low and they typically go up fast and hard as oil prices rebound.

These are stocks where you don’t want to hold them more than 12 months or so because they usually give up all of the early gains from an oil rebound as time goes on.

HAL and SLB Two Other Stocks We Like as a 12-month Trade

Is the Oil Storage Trade Already Over?

Company’s with the ability to store oil rocketed higher today as the lack of oil storage was brought to every investor’s attention.

Looking at how the top three storage stocks performed last oil cycle when storage also ran extremely low we can see there is money to be made, but you have to watch your position like a hawk.

Frontline (NYSE: FRO) and DHT Holdings (NYSE: DHT) spiked when storage ran out and never made a new high.

That trade was over as soon as storage became a problem.

However looking at Teekay Tankers (NYSE: TNK), this stock made investors money for another six months after storage problems appeared.

This makes sense because when storage on land runs out, oil traders start stashing oil in floating storage (aka tankers) and tanker revenue and earnings go up.

Oil Storage Stock Performance During Last Bear Market

Judging by Teekay’s recent stock price move, there could be another 10%-20% of stock upside up for grabs after the stocks 60% move in the last three weeks.

The other two stocks we would leave for dead, that ship has sailed.

The Storage Stocks Trade Has Some Juice Left

Full Disclosure: The author owns shares of XOM,EPD,HAL and SLB.

About Author

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.