Oil Is Down Today, Up Tomorrow. Here's Why I'm Not Worried.

Oil prices have been very volatile since Israel and the U.S. launched military strikes against Iran about three weeks ago. Crude has surged on news of attacks against oil tankers in the Persian Gulf and energy infrastructure in the region. Meanwhile, it has fallen on days when there are positive reports about potential strategies to reopen the Strait of Hormuz to tanker traffic and other moves to improve global oil supplies.

Crude oil could continue to bounce around until there’s a long-term solution on Iran. I’m not worried either way. Here’s why.

Image source: Getty Images.

I have ample upside to higher oil prices

I own a trio of oil stocks: Chevron (CVX +0.12%), Canadian Natural Resources (CNQ 1.98%), and ConocoPhillips (COP +0.71%). I’ve owned ConocoPhillips for nearly two decades, while Chevron and Canadian Natural Resources are more recent additions. All three oil companies provide my portfolio with upside to higher crude prices.

For example, a $1 increase in the average oil price can boost Chevron’s annualized earnings and cash flow by $600 million. Meanwhile, a $1 increase in oil prices can raise ConocoPhillips’ annualized earnings by more than $100 million. With crude prices currently up around $40 a barrel this year, these oil companies can generate significantly more cash flow. That will give them more money to return to shareholders via dividends and buybacks. The higher total returns these oil stocks can generate when crude prices are rising can help offset some of the impact of higher oil prices across my other portfolio holdings.

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NYSE: COP

ConocoPhillips

Today’s Change

(0.71%) $0.90

Current Price

$126.92

Key Data Points

Market Cap

$155B

Day’s Range

$126.11 - $128.13

52wk Range

$79.88 - $128.13

Volume

32M

Avg Vol

9.3M

Gross Margin

24.63%

Dividend Yield

2.55%

I’m well protected if crude prices fall

I own these oil stocks because they can still thrive at lower oil prices. For example, Chevron expects to deliver more than 10% annual free cash flow growth through 2030 at an average oil price of $70 a barrel. Meanwhile, ConocoPhillips can double its free cash flow by 2029, also at $70 crude. That’s due to their low oil breakeven levels and the visible growth from their expansion projects. All three currently have oil price breakeven levels in the $40s (the oil price they need to generate enough cash to support their maintenance capital spending plans).

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NYSE: CVX

Chevron

Today’s Change

(0.12%) $0.24

Current Price

$201.68

Key Data Points

Market Cap

$403B

Day’s Range

$201.21 - $205.06

52wk Range

$132.04 - $205.08

Volume

592K

Avg Vol

12M

Gross Margin

14.66%

Dividend Yield

3.43%

As a result, this trio of oil stocks should have plenty of fuel to continue growing their dividends even if crude prices fall. Chevron has increased its dividend for 39 straight years, Canadian Natural Resources recently extended its streak to 26 straight years, and ConocoPhillips has delivered a decade of dividend increases. One of the main reasons I own these oil stocks is to collect their attractive, growing dividends (they currently have yields between 2.5% and 3.5%).

Oil-fueled upside potential with strong downside protection

I have no idea where oil prices will go from here. They could surge even further if the war continues to impact oil supplies or plunge if there’s peace in the Middle East. I’m not worried either way. I own a trio of oil stocks that can cash in on higher oil prices while still thriving even if crude prices slump.