Flashback to last Tuesday and oil plummeted to a historic low. Oil dropped into negative territory. Instantly, people that’s great. Because companies like BHP will pay me to take barrels of oil off their hands, right? Unfortunately, the idea of being paid to take oil is unrealistic for the average Joe. Where would you store your barrels? What warehouse would you use? Plus, do not forget the shipping costs?

However, I come bearing great news. The average investor can profit off smart investments relating to the oil crisis. Oil is trading at an extremely low price. However, current oil prices are temporary. Once the virus fizzles out, travel returns to normal, and the economy recovers oil should surge again (opinion not advice).

Oil crisis investments include:

  • 1) Investing in oil companies (stocks) – Average investors/people new to investing 
  • 2) Investing in oil Exchange Traded Funds (ETFs) – Intermediate Investors 
  • 3) Investing in Exchange Traded Commodities (ETCs) – Experienced Investors 

If you want to learn:

Then click on our free, digestible, and extensive report HERE.  Today, we are discussing one ASX oil stock and one ASX ETF.

Santos (ASX: STO) 

Who is Santos? 

  • Santos is a leading oil and gas producer within the Asia-pacific region.
  • STO provides affordable and reliable gas to the Australian and Indonesian markets (homes and businesses).
  • STO produces and supplies oil to the Australian, Indonesian and Vietnamese markets.

Current Developments

* (Think of each development as an asset that generates revenue for STO)

1) Cooper Basin (Queensland project)

2) Northern Australia and Timor Leste – Oil and gas explorations.

3) Papua New Guinea – PNG Liquefied Natural Gas project (PNG LNG)

4) Queensland and New South Wales – Liquefied Natural Gas Projects (GLNG)

5) Western Australia

Financials Q1 2020

  • Sales were down 13% (YOY)
  • Liquidity total is US$3.1 billion
  • US$265 million of free cash flow
  • Net debt was US$3.1 billion
  • Gearing weighed in at 29%

 

How is STO responding to COVID-19 and the oil crisis? 

  • STO is hedging 14.2 million barrels of oil, at an average floor price of US$39, for the rest of 2020.
  • STO secured fixed price domestic gas sales contracts.
  • All growth projects deferred until the uncertainty fizzles out.
  • STO reduced capital expenditure for 2020 by 38%.

Is STO worth the investment? 

Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.

STO is an excellent long term investment (opinion, not advice).

  • STO can financially survive the pandemic and beyond. STO’s $3 billion in liquidity and $265 million in free cash flow provides a layer of financial security.
  • STO is acquiring ConocoPhillips’ NT and Timor-Leste business in H1 2020. Providing, STO with a low-cost, life long asset for future growth.
  • STO’s disciplined operating model saw the business reach multi-year oil/gas production highs across their five developments. STO should continue the upwards trend once COVID-19 dissipates.
  • S&P Global Ratings (stable outlook) and Morgan Stanleys  (add rating) view STO as a viable business
  • Also STO offers a dividend. When oil recovers I expect to see a corresponding increase in STO’s dividend.

Oil prices will rebound eventually. Once there is significant evidence to suggest a steady oil recovery then ill jump in STO. I would be holding STO for the long-term. Because historically oil indexes remain bullish or bearish for multiple years. Meaning, the recovery should last a while.

 

 

 

Beta Shares Global Energy ETF (ASX: FUEL) 

However, not every trader has time to find the best oil companies. When time is not on your side, an Exchange Traded Fund can come in handy.

FUEL is an ETF that provides investors with exposure to the word’s largest oil companies, such as Chevron and ExxonMobil.

What are the benefits of ASX: FUEL? 

  • Diversified: Access to the world’s leading energy companies.
  • Liquidity: Investors can get in and out at any time. It is just like trading any ASX listed share.
  • Undervalued: The oil crisis making the fund undervalued (opinion not advice).
  • Simplicity: Saves investors the headache of searching for the best oil company.

 

What are the risks with ASX: FUEL? 

  • Prolonged oil crisis: You could take a short-term paper loss until the oil crisis and COVID-19 fizzles out. Because the expiration date of either crisis is uncertain, the potential paper loss could be three months, six months, or even a year.

 

Is FUEL worth the investment? 

Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.

Personally, investing in gigantic oil companies is the best way to profit off the oil crisis. Because the oil behemoths like Chevron will likely survive the pandemic. Also, if times get tough, the American government would likely bail out the oil giants. Because they account for 6.7% of America’s GDP. Therefore, investors are de-risking their investment by investing in bankrupt-proof oil companies (opinion not advice). Also, FUEL offers a dividend.

I will be investing in FUEL for the long-term. I am getting in once there is significant evidence to suggest an oil recovery.

Here is our free, uncomplicated, and extensive ASX portfolio

https://youth-investment-group.com/portfolio/

Want access to free, uncomplicated, and smart COVID-19 Strategies then click below?

https://youth-investment-group.com/2020/04/09/how-to-profit-off-smart-investments-during-covid-19/ 

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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

Written by Patrick McLoughlin, Senior Manager of YIG.

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