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J. Paul Getty once said, "My formula for success is rise early, work late, and strike oil."

Good advice in 1957. But in this economy?

As I write this, a barrel of WTI crude oil costs $58.60.

At the same moment, Sharper Image is selling a “Warming Foot Massager” for $59.49.

In other words, you can purchase an entire barrel of oil for less than it costs to buy a novelty mail order gift. In a world where gold is up, tech stocks are up, Bitcoin is up, tin is up, and Fartcoin is up — oil is still down.

And this means oil stocks have gotten cheap.

Exxon Mobil Corporation is now offering a 3.51% starting yield.

Chevron Corporation is yielding 4.45%.

Meanwhile, smaller “hidden gem” energy stocks such as Canadian Natural Resources and Suncor Energy yield 5.60% and 4.26%, respectively.

Rather than going through every oil stock that pays a dividend, let’s take a look at the oil sector as a whole. What oil is used for, why “the death of oil” is overexaggerated, and whether or not oil stocks are worth buying.

This isn’t a blindly bullish report, however.

There is one major downside to buying oil stocks, and it has nothing to do with climate change. But more on that in a minute…

What Is Oil Used For?

When most people think oil, they think “cars.” Oil and gasoline are used to power vehicles. There are plenty of cars on the road — as anyone who’s been stuck in rush-hour traffic can confirm — so it’s easy to assume that all 80 million barrels of oil pumped each day end up in gas tanks and engines.

However, oil usage goes well beyond cars and trucks.

Sunscreen, aspirin, and hair dye are made with petroleum products. Oil is also a key ingredient for making lip balm, inflatable rafts, and plastic syringes. You’re even reading this article on a device that’s made partially made from oil — a computer or smartphone.

Contact lenses, artificial limbs, lifejackets, toothpaste, dentures, gumballs, basketballs, golf balls…

It’s all oil.

Roughly 30% of the world’s energy supply comes from oil. So even if everyone dumped their gas-powered cars and started driving Teslas and electric Ferraris, there’d still be demand for petroleum products.

Rumors Of My Death Have Been Greatly Exaggerated

If oil is the energy sector’s redheaded stepchild, coal is the disfigured twin the family keeps chained and hidden in the basement.

Everyone hates coal. It’s the most disliked energy source in the world, even less popular than oil or natural gas. To the general public, coal feels like an outdated relic, something that disappeared along with steam-powered trains and evening lamplighters.

So here’s an important question…

In what year did the world consume the most coal?

Was it 1815? 1889? 1912?

Try 2024.

Coal use is actually on the incline, with more and more coal being used each year.

The public may hate coal, but it’s an essential energy source that billions of people rely on. And coal’s increased popularity is something of a dirty secret that’s quietly swept under the rug.

Oil has a similar negative sentiment. But as long as billions of people around the world rely on oil and petroleum products, it will remain a valuable commodity.

The Biggest Downside To Owning Oil Stocks

Are big oil stocks a safe, long-term investment that will continue providing stable dividend income? Probably. Some oil stocks, like Canadian Natural Resources Limited, are trading at a price to earnings ratio of 12 while paying a 5.60% starting dividend yield. That’s a cheap valuation for a profitable, income-producing investment.

However, there’s one major downside to oil and gas companies. And this drawback has nothing to do with the environment or the morality of investing in fossil fuels.

The problem is much more basic.

Oil is a commodity. Different grades of oil sell at fixed prices that only fluctuate based on supply and demand. In other words, an oil company’s success is almost entirely determined by the price of oil.

To quote Warren Buffett, “When you buy into a huge oil production company, how it works out is going to depend on the price of oil to a great extent. It's not going to be your geological home runs or super mistakes or anything like that. It is an investment that depends on the price of oil.”

Branded goods can create demand for what they’re selling.

Williams-Sonoma, Inc., for example, sells a 21 oz bag of pumpkin cinnamon streusel bread mix for $19.95. And the earlier mentioned Sharper Image is selling a foot massager for $59.49 — more than a barrel of oil costs.

Meanwhile, Chevron and Exxon Mobil are stuck selling their products at a predetermined market price.

Big Oil can’t sprinkle cinnamon in a bag of flour and sell it for 10x the price like a direct-marketing home goods company can. Which is probably why Chevron is up 158.70% over the past 10 years while Williams-Sonoma is up 577.42%.

As an income investment, oil stocks are fine.

A cheap, low-cost producer with a strong starting yield can provide reliable dividend income for the long-run. However, oil is a commodity business and investors will never get the same type of “branded business” returns that companies like Apple, Williams-Sonoma, or Hermès provide.

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Disclaimer: This article is for entertainment purposes only. It is not financial advice, always do your own research.