Fashionistas may secretly regret the impending departure of the flamboyant Libyan dictator, whose wardrobe ranged from early Mussolini to late Michael Jackson. But most of the world will simply breathe a sigh of relief. And the greatest relief may well be felt in the oil industry, even though oil prices are likely to suffer in the short run.
Oil stocks should be a key part of any long-term stock portfolio. But since late April, the price of oil has fallen by about 25% as fears of a global economic slowdown have taken hold. As a result, top U.S. oil stocks are currently 15% to 20% below their recent highs.
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The downfall of Col. Muammar Gaddafi will likely prolong the oil price decline even as it eliminates one of the big risks in the oil industry. Libyan oil exports were greatly reduced in recent months because of the fighting. But once the conflict ends, analysts expect shipments to start recovering. That would boost the world’s oil supply and temporarily undermine prices. Brent crude oil prices in Europe fell 1.2% on news that Libyan rebels had overrun Tripoli.
Nonetheless, global demand for oil will almost certainly grow over the coming decade. And top U.S. oil companies look like great long-term buys for any investor whose time horizon stretches beyond the current economic slump. The following three stocks, which all pay above-average yields, are especially worth keeping an eye on and scooping up when you think they’ve reached bargain levels.
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Exxon Mobil (XOM) is the leader in the group and rivals Apple for the title of most valuable public company in the world. Exxon currently yields 2.7% and is generally a bit more expensive than other top U.S. oil stocks.
Chevron (CVX) has been the best performer of the three over the past six months. The stock is a good alternative to Exxon, since its P/E is slightly lower than Exxon’s while its 3.3% yield is slightly higher.
ConocoPhillips (COP) is the highest-paying at 4.2%. In July, the company announced plans to split in two, separating refining operations from exploration and production. Details of the breakup are still being worked out, but analysts generally expect that the split will help the share price over the coming year.
In the meantime, all three stocks may well dip further once Gaddafi truly passes from the scene. His fashion sense may be missed by some, but his regime will go largely unlamented.
