Key points
- Oil price has topped $90 for the first time since 2014
- 2 FTSE 250 oil stocks could provide exposure to this trend
- Both companies are actively producing and exploring in many regions around the world
The West Texas Intermediate (WTI) and Brent crude oil benchmarks have both just broken the $90 barrier. This means that oil surpassed its previous, pre-Omicron high of $85. With tightening oil supplies, I think this could be a good destination for my investment funds. To gain exposure to the oil price, I like to invest in equities and have found two attractive stocks on the FTSE 250 index. Could they help to grow my portfolio? Let’s take a closer look.
Why has oil surpassed $90?
For the first time since 2014, the oil price has moved above $90. There are a number of reasons for this. Firstly, there are worries about supply. Only this week, the Organisation of the Petroleum Exporting Countries (OPEC+), agreed to maintain its monthly output increase of 400,000 barrels per day. In real terms, however, a number of OPEC+ members are struggling to meet this increase as they try to ramp up production.
Meanwhile, heightened tensions in Ukraine have deepened production fears. There is a possibility of war involving Russia and Western states, and this could have a severe impact on oil production capabilities in the region. The two FTSE 250 oil stocks could expose me to this oil dynamic.
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
Demand-wise, cold winter storms having been hitting much of the US. While this has increased demand for oil, there are also supply-side concerns. With frigid weather forecast to even hit Texas, there are worries that production in this area will be negatively impacted.
2 FTSE 250 oil stocks that could fly
Seeking to capitalise on this oil price rise, I’m turning to the FTSE 250 to find some oil stocks. The first company, Capricorn Energy (LSE: CNE), is focused on production in Egypt. It also has ongoing exploration activities in the North Sea, South America, and West Africa.
Only last month, the company announced that production in Egypt had increased 8% between September and December 2021, beating expectations. Results from other drilling sites are expected in mid-2022.
With a debt-to-equity ratio of 0.33, this is stronger than a FTSE 100 oil stock like BP, which has a figure of 1.43. That said, Capricorn Energy has seen its earnings slide over the five calendar years from 2016 to 2020.
The second FTSE 250 oil stock I like is Harbour Energy (LSE: HBR). This company operates in the UK, South America, and Asia. Berenberg recently upgraded the stock on account of its “significant free cash flow”, stating that it could have “a net cash balance sheet by 2024”. That said, it does have a not insignificant net debt pile of $2.6bn.
Producing around 175,000 barrels per day, Harbour Energy has an operating cost of only $15.6 per barrel. While some of the oil produced is hedged at $58 per barrel, the company will be benefiting from the higher oil prices globally.
Oil prices are surging. These two FTSE 250 stocks will provide me with exposure to this trend. I will be buying both as the oil price tops $90, in the hope of further gains to come.
