Key Points
Oil prices have spiked again, and Goldman Sachs expects energy costs to remain elevated.
That's good news for producers like Diamondback Energy, but most investors should probably focus on playing a different game.
The geopolitical conflict in the Middle East has led to significant swings in oil and natural gas prices. That's neither unexpected nor unusual. At this point, Wall Street is expecting oil prices to remain elevated for an extended period of time, with Goldman Sachs(NYSE: GS) recently increasing its oil price targets.
Most energy investors should probably avoid commodity price volatility by focusing on companies like Enterprise Products Partners(NYSE: EPD) and Energy Transfer(NYSE: ET).
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Diamondback Energy is set to benefit from high oil prices
High oil prices will lead to strong revenues and earnings for energy producers like Diamondback Energy(NASDAQ: FANG). Up over 33% so far in 2026, Diamondback Energy's stock already reflects much of the good news. Investors need to remember that falling oil prices would lead to weaker revenues and earnings. History is very clear, this period of high oil prices will eventually end, even though Goldman is expecting higher for longer.
There is an alternative. Instead of investing in a segment of the energy sector that is exposed to commodity price risk, you can invest in the midstream. Businesses like Enterprise and Energy Transfer have fee-based models, essentially charging tolls to companies that use their energy infrastructure to move oil and natural gas around the world.
Of the two, Enterprise is a better choice for risk-averse investors. It has increased its distribution for 27 consecutive years and has long operated conservatively. Energy Transfer cut its distribution in 2020 with the goal of reducing leverage. Prior to the cut, Energy Transfer had pursued a more aggressive growth strategy, with a heavy focus on debt-financed acquisitions. The distribution is growing again, and the goal is now to grow more slowly via internal capital investment opportunities. The plan is to increase the distribution by a very reasonable 3% to 5% per year, roughly what investors can expect from Enterprise.
Long-term is measured in decades, not quarters
The thing about Goldman's updated oil target is that it is for 2026. That's a short-term focus. Long-term dividend investors think in decades. If that's your time frame, Enterprise's 5.6% yield and Energy Transfer's 6.7% should be far more interesting than the likely transient opportunity Diamondback Energy has to benefit from elevated revenues and earnings in 2026. Headline-grabbing news in the oil patch is exciting and will lead to short-term price gains for some companies, but don't let it distract you from your long-term goal of steadily building wealth over time.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.
