The oil industry is rapidly changing in the current economic climate. Find the latest information in the newsfeed at the end of this article. Oil companies are crucial to the global economy because they provide the fuel needed for transportation and power, as well as the building blocks of petrochemicals. However, the oil industry is highly competitive and volatile. That volatility was on full display in , as crude prices went on a wild ride because of COVID Because of these and other factors, investors need to tread carefully around the oil patch, especially when it comes to the companies that explore for and produce oil and gas. Here's a closer look at the factors to consider before buying oil stocks, as well as the top companies in the sector. The oil industry is inherently risky for investors. While each segment has a specific set of risk factors, the overall business is both cyclical and volatile. Oil demand grows along with the economy, which when robust can support higher oil prices and producer profitability. However, geopolitics and capital allocation also play crucial roles in the industry. Several large oil-producing nations are part of OPEC, an organization that works to coordinate national oil policies. OPEC's actions can significantly affect the price of oil. Meanwhile, oil companies that operate independently of OPEC can also have an impact on the oil market if they allocate too much or not enough capital to new oil projects. Given the volatility in oil prices, an oil company must have three crucial characteristics to survive the industry's inevitable downturns. With those factors in mind, here are three top oil stocks worthy of investors' consideration:. It also produces oil using a variety of sources and methods, including horizontal drilling and hydraulic fracturing of shale in the U. Because of that, the company can produce a substantial amount of cash flow at lower oil prices. Finally, the company complements its diversified, low-cost portfolio with a top-tier balance sheet. Because of this, it's highly resilient to lower oil prices, making it one of the best-positioned oil companies to handle the sector's volatility. Finally, it's a major carbon dioxide transportation company, using CO2 to produce oil in Texas by injecting it into aging oil fields to coax more crude oil out of the ground. Kinder Morgan has minimal direct exposure to oil prices because it generates most of its income from fee-based contracts. Finally, Kinder Morgan has a strong investment-grade balance sheet. That provides it with the financial flexibility to continue making growth-related investments as well as return cash to shareholders via its buyback and dividend, even during rough patches. That was the case in as Kinder Morgan increased its dividend even though many rivals reduced their payout. Finally, its marketing and specialties business distributes refined products and manufacturer specialty products like lubricants. Thanks to its large-scale operations, Phillips 66 is among the lowest-cost producers in its industry. The company, for example, leverages its midstream network to provide its refineries and petrochemical facilities with low-cost oil and NGLs. It also focuses on producing higher-value products like low-sulfur diesel, which boosts its profitability. Finally, it invests in projects that improve its margins, especially on the refining side. Phillips 66 also boasts a strong financial profile, which includes an investment-grade balance sheet, well-laddered debt maturities, and lots of liquidity. Those factors provide it with the financial flexibility to invest in expansion projects, pay an attractive dividend, and repurchase shares. One of the primary home heating fuels in the United States, natural gas offers plenty of investment options. The oil market can be quite fragile, with a slight imbalance between supply and demand often causing it to go haywire. As a result, investors need to be careful when choosing oil stocks. Exxon is trying to do two big things at once, and they are at odds with each other. This issue is unlikely to go away anytime soon. These three energy stocks have fallen significantly due to sector headwinds. But they look better positioned to recover, benefiting investors.

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