Oil demand generally follows economic growth. A robust economy can support higher oil prices and the profitability of oil producers. But geopolitics and capital allocation also play a decisive role in the industry. Given the volatility of oil prices, an oil company must have three key characteristics to survive the inevitable industry downturns: Benchmark WTI fell 0.20% to $77.79 at 4:41 a.m. EST today. After yesterday`s crisis, crude oil prices fell by nearly 8% last month amid global macroeconomic momentum. After the chatter of an increasing production. The world`s largest oil exporting countries include members of OPEC (Organization of the Petroleum Exporting Countries), a cartel that coordinates members` oil policies. OPEC actions can have a significant impact on the price of oil.
It can dampen supply to raise prices or increase production to lower them. OPEC has exerted its power over the years, causing massive fluctuations in oil prices. ConocoPhillips enjoys the size and access to some of the world`s most cost-effective oils, including significant exposure to the Permian Basin. It strengthened its position in this low-cost, oil-rich region in 2021 with the acquisition of Concho Resources and Shell`s assets in the region. With an average cost of around $40 per barrel and many of its resources even cheaper, it can make money in almost any environment in the oil market, allowing the company to generate a lot of cash flow. Devon`s dividend strategy makes it a tempting option for income-oriented investors. They will receive a stable basic dividend that is sustainable throughout the oil price cycle and has the potential to make large payments during periods of high prices. The company introduced the industry`s first fixed and variable dividend framework in 2021.
It pays out up to 50% of its excess cash flow each quarter as variable dividends after funding its fixed base dividend and cost of capital. Devon uses the rest of its excess cash to strengthen its balance sheet and buy back shares. Finally, the company complements its low-cost portfolio with a top-notch balance sheet. ConocoPhillips consistently has one of the highest credit ratings among exploration and production companies, supported by a low debt-to-GDP ratio for the sector and plenty of liquidity. These factors make it one of the safest E&P investments. Meanwhile, oil companies that operate independently of OPEC can also have an impact on oil prices. If they allocate too much capital to new projects, they can cause oversupply and weigh on prices. If they hold back too much, they can drive up prices. Since oil and gas assets are developed over a long period of time, companies cannot quickly increase their supplies to meet favorable market conditions. However, the oil industry is highly competitive and volatile. Profits and losses can fluctuate significantly due to small changes in demand or movements by petro-states such as Saudi Arabia and Russia, whose interests may go against state-owned companies in the sector.
Imbalances between supply and demand can lead to huge fluctuations in oil prices. We saw this in early 2022 after Russia`s invasion of Ukraine, which pushed crude oil prices into the triple digits for the first time in years. Russia`s invasion of Ukraine in February significantly disrupted the global oil market. European Union leaders banned most Russian crude imports in May, and oil prices soared in March, and the Biden administration released record amounts of oil from the U.S. Strategic Reserve to boost supply. While gasoline prices fell over the summer after hitting highs earlier this year, oil company OPEC+ is considering supporting oil prices. It is important for investors to be aware of the volatility of the oil sector. For this reason, it`s best to focus on companies designed to survive the inevitable industry downturns. This means focusing on those with relative immunity to price fluctuations, such as ultra-low-cost E&Ps and integrated oil giants.
Another way to invest in the oilfield is to focus on generating dividend income. Occidental Petroleum Corp. is engaged in the exploration and production of oil and natural gas. It operates in the following segments: oil and gas, chemicals, and midstream and marketing. The Oil & Gas segment researches, develops and produces oil and condensate, natural gas liquids and natural gas. The Chemicals segment produces and markets basic chemicals and vinyls.