Is investing in energy a good idea? Here’s a breakdown of how to do so and why energy stocks could be profitable for resource investors.
Energy surrounds us in our everyday lives. We use it to light and warm our homes, drive to work, communicate and much, much more.
Different applications require different types of energy. For example, oil and gas are often used for heat, while nuclear reactors use uranium to make electricity. Renewable energy sources like wind, solar panels and hydropower are also gaining traction as ways to generate electricity.
Because energy is so necessary to all aspects of life today, investing in energy is becoming popular. But what kind of energy is the best to invest in? And which companies offer the best return on investment?
To help investors interested in the energy sector to do their due diligence, we’ve put together a brief overview of the oil, gas and uranium markets — all are popular sources of energy today, and may be good investment choices for those who want exposure to the industry.
This article continues below the Energy Investing Table of Contents.
Energy Investing Table of Contents
The articles listed below provide an overview of investing in energy from Energy Investing News.
Start Here – Energy
- How to Invest in Energy
- Ways to Invest in Oil
- Ways to Invest in Natural Gas
- How to Invest in Uranium
Investing in energy: Oil and gas
Crude oil and natural gas are widely recognized as key energy sources around the world. Oil stocks and gas stocks have dominated the energy investment market for a number of decades.
Both oil and gas occur naturally and are in a class of chemicals called hydrocarbons. The two are generally found in close proximity to each other deep underground in rock formations; gas and oil companies drill wells to find the fuels, then extract them.
Those watching the oil space know that oil prices are often volatile. Indeed, in just the past decade, oil prices have seen an incredible range — prices soared past US$140 per barrel in 2008, then crashed steeply from the end of 2014 to the beginning of 2016 to as low as under US$30. Oil prices per barrel went on to recover late in 2016, to trade between about US$50 and US$75.
Such price swings are the result of a variety of factors, and in this article, Forbes contributor Michael Lynch does a good job of outlining some of them. For example, he notes that oil consumption data is often not reported in a timely manner, and comments that the Organization of the Petroleum Exporting Companies, better known as OPEC, can influence prices. Even the weather can have an impact.
In 2020, the coronavirus pandemic has wreaked the most havoc on oil prices. COVID-19 lockdowns have placed significant downward pressure on oil demand, even pushing the price into negative territory.
Gas prices have also been volatile in the last decade. They leaped in 2008, when they were above US$13 per million British thermal units, and their lowest point of below US$2 came at the beginning of 2016. Then, between 2017 and the lead up to the COVID-19 pandemic, gas prices averaged around US$3.
In April 2020, gas prices followed the same downward trajectory as oil prices, dropping to a low of US$1.65. As with oil prices, gas prices are affected by a number of factors. However, weather has more of an effect on gas prices than it does on oil prices.
Given that volatility, investing in oil and gas can be daunting. But for some new and institutional investors it’s an exciting prospect — after all, while both spaces have seen incredible lows in the last 10 years, they have also seen incredible highs. Click here to learn more about how to invest in oil and click here to learn more about gas investing.
Investing in energy: Uranium
It is a cleaner and more efficient source of energy than oil and coal, and, as noted, is used to power nuclear reactors. The production of nuclear energy itself produces no carbon dioxide, although mining and refining uranium does produce carbon emissions.
Despite having advantages over other more polluting fuel sources, uranium has some downsides. Most notably, nuclear reactor accidents can be devastating. For evidence, investors need look no further than the 2011 Fukushima disaster in Japan — a major earthquake caused a tsunami that ultimately led to meltdowns at three reactors and to the release of radioactive materials. After that incident, concern about nuclear power increased, with Germany even announcing plans to phase out nuclear power.
However, uranium is by no means out of the picture as a source of energy, especially as energy demand rises. Japan is slowly bringing its reactors back online, and has added further safety mechanisms to reduce the likelihood of future disasters. Overall, more and more reactors are being built worldwide — as of mid-2020, there were 440 reactors operating globally, and over 50 being constructed.
Even so, uranium prices are currently in a slump; in fact, 2016 was one of the toughest years for uranium in recent memory. The uranium spot price hit a 12 year low of US$18.75 per pound that year, an unexpected turn of events for many in the sector. Fortunately, many experts believe that the bottom is now in, meaning that the uranium price will rise moving forward. In May 2020, the spot price of uranium hit a four year high of US$34.20.
While it may still be awhile before uranium reaches its high point of close to US$140, investors who believe in the future of nuclear energy may want to consider investing in uranium. For more information on how to invest in uranium, click here.
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Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.