I’ve been keeping an eye on this surge in oil prices lately, and I’ve noticed that many people are starting to pay attention to oil-related stocks. However, many people still don’t understand why, among assets labeled as “oil stocks,” some soar to the sky while others just remain stuck there. The real reason is the position of the company in the industry chain. Today, let’s talk about how to see through this logic.

First, let’s look at the current situation. The escalation of tensions in the Middle East caused Brent crude to briefly break through $120; it’s currently trading in a range around 90–92. The year-to-date (YTD) increase has already exceeded 60%, which is indeed very rare in recent years. But there’s one easily overlooked detail: the IEA and EIA predict that in 2026, the global oil market will actually be in a situation of oversupply, with a daily surplus of 1.87 million barrels. This means that any short-term geopolitical premium may fade quickly, and the window for oil-price surges may not last very long.

The key to understanding oil stocks is to understand the industry chain. Upstream companies (such as ExxonMobil XOM and ConocoPhillips COP) are the most affected by oil prices. For every $1 increase in oil price, their earnings can be amplified by 20–30 times—this is the category with the strongest leverage effect. Midstream pipeline companies (like Canada’s Enbridge ENB) are much steadier: they collect “toll fees,” and are basically unaffected by oil-price fluctuations. Downstream refining and petrochemicals (Formosa Petrochemical 6505, Formosa Plastics 1301) focus on crack spreads. Rising oil prices don’t necessarily benefit them; it also depends on whether downstream customers are willing to accept higher prices.

For investors in Taiwan, the most familiar are, of course, the Formosa “Four Treasures.” Formosa Petrochemical is Taiwan’s only refinery. When oil prices rise moderately, this stock performs best: the selling prices of refined products rise along with oil, crude costs are also kept under control, and crack spreads can be maintained. This is when trading oil-price cycles tends to work best. The other three—Formosa, Nan Ya Plastics, and Taiwan Fertilizer—are more oriented toward petrochemicals. What they need is the perfect combination of “oil prices rising steadily + strong downstream demand + the ability to raise product prices.” None of these can be missing.

If you want to be more aggressive, there are more choices among U.S. stocks. ExxonMobil and Chevron—these two industry leaders—have businesses covering the entire industry chain. When oil prices surge, the whole chain can benefit, and they also tend to be more resilient against downturns. Enbridge’s 7% dividend yield is very tempting, making it suitable for dividend-holding strategies. Companies like Cheniere Energy, which are LNG exporters, benefit from the global energy-structure transition: their growth is strong, though volatility is also higher.

The appeal of oil-related stocks really lies in the cyclical amplification effect. For example, in 2023, ExxonMobil’s net profit surged from $23 billion to $55.8 billion—this is a typical case. On top of that, dividend payouts in this sector are generally higher than in other industries. In recent years, the energy sector’s dividend growth rate has reached 50%. Chevron has increased its dividends for 36 consecutive years—such return strength is indeed impressive.

But the risks are also significant. On the demand side, if there’s a sudden, steep drop, oil prices could crash by 20–50%, and oil stocks would be hit hard as well. In the long run, the pressure from the energy transition is gradually eroding the valuation space for upstream companies. Another common trap is the capital expenditure (capex) trap: some companies, when oil prices are high, become overly optimistic, take on excessive debt to expand production, and ultimately find themselves in trouble during a downturn. For instance, in 2020, BP cut dividends by 60% for this reason.

For small investors, you don’t necessarily need to research individual stocks. Products like the Yuanta Oil ETF can be entered for under NT$3,000—these help diversify risk and are also easier to invest in. Or you could consider pairing Formosa Petrochemical with Formosa Plastics: one follows oil-price trends, and the other locks in more stable dividends. If you want to trade short-term volatility, using a CFD platform to trade U.S. stocks directly is also very convenient—you don’t have to deal with the hassle of currency conversions and exchange.

In short, oil-related stocks are about “making quick money and making cyclical profits,” not about relying on dividends for long-term passive gains. Once the business cycle reverses and oil prices fall, a 30–50% pullback is completely normal. The key is to set stop-losses and control position sizing so you can profit steadily amid cyclical fluctuations. Right now, the window for oil-price surges may be limited—getting the timing right is the most important thing.