Recently, I’ve been paying attention to a pretty interesting phenomenon—every time oil prices plummet, many people start panicking, but actually some stocks tend to rise when oil prices fall. The logic behind this is quite simple: once you understand the oil industry chain, you can see why some “oil concept stocks” make a fortune while others get trapped.

Let’s start with the most straightforward: oil stocks are not a single basket. Upstream exploration and extraction companies (like XOM, COP) rely directly on oil prices; when oil prices go up, they make money. But midstream pipeline companies (like ENB) only collect tolls, so fluctuations in oil prices have little impact. The most interesting are downstream refining and plastics companies (like Formosa Plastics, Formosa, Nanya), which buy crude oil and sell gasoline and plastics, earning the spread in between. So when oil prices crash and raw material costs drop, if the prices of end products don’t fall proportionally, these companies’ gross margins can actually expand—that’s the real reason why sometimes stocks rise even when oil prices fall.

I’ve noticed that the energy market in 2026 is actually at a delicate balance point. On the surface, Middle East tensions pushed oil prices higher, with Brent briefly surpassing $100 per barrel, but the fundamentals tell a different story—globally, the oil market is expected to be oversupplied all year, with an excess of 1.87 million barrels per day. This means that once geopolitical risks subside, oil prices are likely to see a significant correction. And this impact is completely opposite for different types of oil stocks.

For Taiwanese investors, the easiest to start with are the Formosa Four. Formosa Plastics is Taiwan’s only refinery, and the logic is straightforward—buy crude oil from CPC, refine it into gasoline and diesel, and sell it, earning the “product price minus crude cost” spread. When oil prices rise moderately, it’s most profitable because downstream demand remains, and the spread can be maintained. But if oil prices crash, raw material costs drop, and as long as product prices don’t fall too fast, gross margins can actually improve. Formosa, Nanya, and Formosa Chemicals are more focused on plastics; their logic is a bit more complex—they not only need to watch oil prices but also the entire petrochemical cycle and downstream demand. That’s why sometimes “oil rises but stocks don’t,” because costs go up but product prices don’t keep pace.

If you want to get into US stocks, the same logic applies. Large integrated oil companies like XOM and CVX are most sensitive to oil prices, but because of their size and diversified assets, they tend to be more resilient. Pipeline companies like ENB follow a completely different logic—over 7% dividend yield, stable cash flow, minimal volatility, so you don’t even need to watch oil prices much, similar to utility stocks. Upstream exploration companies like COP and LNG firms like Cheniere are high-risk, high-reward plays—they’re most elastic when oil prices rise, but also the most volatile when prices fall.

My own observation is that the current environment for oil stocks isn’t suitable for blindly chasing highs. Geopolitical risks provide short-term support, but the oversupply fundamentals are still there. If you’re a short-term trader, you can follow geopolitical swings to profit from price differences; but if you’re holding long-term, it’s better to focus on stocks with stable cash flow and dividends, rather than chasing the stocks with the fastest oil price gains.

For small investors, the simplest approach is to buy oil ETFs, like Yuanta Oil ETF (00642U). With just over 3,000 NT dollars, you can get in without researching individual stocks. If you want to pick stocks yourself, a combination of Formosa Plastics and Formosa is good—one tracks oil price swings, the other offers stable dividends. For US stocks, ENB’s high dividend yield is attractive, and XOM, as the industry leader, is also worth holding.

Finally, I want to remind everyone that oil stocks are meant to profit from cycles, not to rely on dividends for passive income. When the economy turns around and oil prices crash, a 30%-50% correction is normal. So, always control your position size, set stop-losses, and avoid full-positions trading. Right now, oil prices look strong, but remember—markets are most prone to pitfalls when everyone is chasing the rally.