Investing in energy stocks
Weigh the benefits and risks of investing in oil, gas, coal and natural gas.
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Sector-specific investing can help you broaden and diversify your portfolio. But each sector comes with a unique assortment of benefits and risks. Energy stocks, in particular, offer a world of opportunities in exchange for occasional volatility. Read on to learn more about investing in energy stocks from Australia.
What are energy stocks?
Energy stocks fit into the energy sector of the stock market — one of 11 sectors defined by the Global Industry Classification Standard (GICS). Companies in the energy sector focus on the location, mining and production of oil, coal and natural gas.
What subcategories are included in this sector?
Companies that fall within the energy sector can be sorted into the following subcategories:
- Oil and gas. At the start of the supply chain, we find companies responsible for drilling and producing oil and natural gas.
- Pipelines. These mid-stream providers transport oil and natural gas from the drilling site to their respective refineries.
- Mining. Mining companies produce coal that helps fuel power plants.
- Renewable energy. Those that produce wind and solar energy are considered renewable energy providers.
- Chemicals. This subcategory is comprised of companies responsible for refining oil and gas into specialty chemicals.
How to invest in energy stocks
There are two ways Australian investors can invest in the energy sector: individual stocks or exchange-traded funds. Individual stocks are highly liquid but offer limited exposure. Sector-tracking ETFs are less risky than stocks and offer portfolio diversification but typically pay lower dividends and have higher fees.
You’ll need a brokerage account to invest in stocks and ETFs in Australia. Here’s a quick look at the process:
- Select a platform. Explore your brokerage account options to find the platform that best matches your investment goals.
- Open an account. Most brokerage accounts can be opened online. You’ll need to fund your account before you can make trades.
- Pick your securities. Use your platform’s research tools to search for stocks and ETFs by sector.
- Place an order. Once you’ve found a security you’d like to purchase, place your order.
- Track your investments. Monitor your investments by logging into your brokerage account.
What energy stocks are there?
What ETFs track the energy sector?
Popular ETFs in the energy sector include:
- VanEck Vectors Australian Resources (MVR)
- BetaShares Crude Oil Index ETF (OOO)
- Vanguard Global Infrastructure Index (VBLD)
- VanEck Vectors FTSE Global Infrastructure (IFRA)
- BetaShares Global Energy Companie (FUEL)
How is the energy sector performing?
The stock market is in constant flux, and individual stocks can change prices second by second. But you can use the performance of ETFs to gauge the average performance of a stock market sector over time. The graph below tracks the Energy Select Sector SPDR ETF (XLE).
Why invest in energy stocks?
Energy is a resource the world depends on. The energy market is massive, and for good reason — this resource has been in high demand for many years. And even accounting for the shift towards clean energy, the world is still decades away from being free from oil, coal and gas.
Profitability in the energy sector is largely tied to the price of crude oil, but stock prices are typically stable and frequently pay dividends. Income from energy stocks may also be tax-sheltered — an attractive incentive for Australian investors.
What unique risks does the energy sector face?
Politics play a sizable role in the energy sector. If companies explore energy resources in unstable territories, projects are at risk of being sidelined or halted in the face of political turmoil.
Incorrect geological reports, oil spills and accidents can be costly for Australian investors. This sector isn’t without its risks and investors should weigh the benefits against the drawbacks before allocating funds.
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Important: Share trading can be financially risky and the value of your investment can go down as well as up. “Standard brokerage” fee is the cost to trade $1,000 or less of ASX-listed shares and ETFs without any qualifications or special eligibility. If ASX shares aren’t available, the fee shown is for US shares. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
The energy sector offers the opportunity for profit but carries a unique set of risks. The best way to invest depends on your portfolio and your investment goals. Review your trading platform options to find the brokerage account that best meets your needs.
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