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Investing in energy stocks

Energy stocks have been some of the stronger performers in 2022, but they come with some noted risks.

As many investors found out in 2022, investing in a broad range of sectors can help offset losses and diversify your portfolio – especially in an ever-changing macro landscape

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 – 1 of 11 sectors defined by the Global Industry Classification Standard (GICS).

The GICS states "the Energy Sector comprises companies engaged in exploration & production, refining & marketing and storage & transportation of oil & gas and coal & consumable fuels. It also includes companies that offer oil & gas equipment and services."

It has also grown to include renewable energy as the world transitions to alternate sources.

What subcategories are included in this sector?

If you're investing in energy stocks, it could fall into any of 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 2 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:

  1. Select a platform. Explore your brokerage account options to find the platform that best matches your investment goals.
  2. Open an account. Most brokerage accounts can be opened online. You’ll need to fund your account before you can make trades.
  3. Pick your securities. Use your platform’s research tools to search for stocks and ETFs by sector.
  4. Place an order. Once you’ve found a security you’d like to purchase, place your order.
  5. 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:

Compare solar energy stocks

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 VanEck Vectors Australian Resources (MVR).

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 sizeable 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.

Compare stock trading platforms

Name Product Price per trade Inactivity fee Asset class International
eToro
Finder AwardExclusive
eToro
$0
US$10 per month if there’s been no log-in for 12 months
ASX shares, Global shares, US shares, ETFs
Yes
Finder exclusive: Get 12 months of investment tracking app Delta PRO for free when you fund your eToro account (T&Cs apply).
CFD service. Capital at risk.
Join the world's biggest social trading network when you trade stocks, commodities and currencies from the one account.
CMC Invest
Finder Award
CMC Invest
$0
$0
ASX shares, Global shares, Options trading, US shares, ETFs
Yes
$0 brokerage on US, UK, Canadian and Japanese markets (FX spreads apply).
Trade over 45,000 shares and ETFs from Australia and 15 major global markets. Plus, buy Aussie shares or ETFs for $0 brokerage up to $1,000 (First buy order of each security, each day - excludes margin loan settled trades).
Tiger Brokers
US$2
$0
ASX shares, Global shares, US shares, ETFs
Yes
Finder exclusive: 10 no-brokerage US or ASX market trades in the first 180 days + 7% p.a. on uninvested cash with first deposit of any amount, plus US$30 TSLA + US$30 NVDA shares with deposits up to AU$2000. T&Cs apply.
Trade Australian, US and Asian stocks with no minimum deposit on Tiger Broker’s feature-packed platform.
Webull
US$0.25
$0
ASX shares, Global shares, Options trading, US shares, ETFs
Yes
Get 30 days of $0 brokerage fees when you open your account. Receive $50 of TSLA shares and a $50 trading voucher when you deposit $200. T&Cs apply.
Trade ASX and US stocks and US options, plus gain access to inbuilt news platforms and educational resources. You can also start trading for less with fractional shares.
Saxo Invested
US$1
$0
ASX shares, Global shares, Options trading, US shares, ETFs
Yes
Access 22,000+ stocks on 50+ exchanges worldwide
Low fees for Australian and global share trading, no inactivity fees, low currency conversion fee and optimised for mobile.
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Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.

Bottom line

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.

Frequently asked questions

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades. Read the Product Disclosure Statement (PDS) and Target Market Determination (TMD) for the product on the provider's website.

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