The day after markets enjoyed a surge, the optimism turned negative after a U.S. airstrike in on an Iranian general. Risks are now back on, led by oil prices trending higher. Chances are increasing that oil prices might trend higher in the months ahead.
Oil prices started 2020 at over $60 but energy investors waited for several years for a recover. The excess oil supply is still hurting the major players. Until output from Iraq drops and OPEC exercises further constraint, the energy rebound will play out slowly.
Investors may hold integrated mega-cap stocks like Exxon (NYSE:XOM) and BP plc. (NYSE:BP). Both companies pay a dividend that yields 4.91% and 6.45%, respectively. Chevron (NYSE:CVX) is a widely held stock and has a dividend that yields 3.92%. ConocoPhillips (NYSE:COP), despite gaining one-third from its 52-week lows, trades in the single-digit P/E.
At a macro level, market risks are slightly higher than last year. Iran may strike back in the U.S., creating some instability for energy markets. Plus, with markets at all-time highs and the oil sector barely starting its recovery, the latter has good prospects ahead.
Deep-sea drillers are levered energy plays due to the heavy debt. Should oil prices reach $80 and beyond, stocks like Seadrill (NYSE:SDRL) could become rewarding speculative plays.
Disclosure: The author owns shares of BP.
