Oil stocks are doing great in the current market environment. With demand still strong and supply constrained, these companies have plenty of opportunity to make money hand over fist even if prices dip below $80 per barrel. Moreover, cheap oil stocks offer a great way to diversify your portfolio. I believe that even though they have seen some volatility in the market, the oil will continue as an essential part of our world and economy.

This year’s narrative for cheap oil stocks is centered on the Russia/Ukraine conflict and the resulting energy crisis. Moreover, with Ukraine gaining momentum in the war, we may see an even more aggressive stance from the Kremlin. Therefore, oil stocks will likely be incredible bets for the foreseeable future.

From an economic standpoint, oil prices, for the most part, tend to be price inelastic. Inelastic demand is when demand doesn’t fluctuate much, given a price change. Base demands for oil tend to be inelastic despite consumer sentiment. Having said that, let’s look at three cheap oil stocks that could provide plenty of value to your portfolio.

Chevron (CVX)

Integrated oil and gas giant Chevron (NYSE:CVX) has been a great investment this year. Its shares have surged over 20% in a year where the S&P 500 has tanked to historic lows. It’s been capitalizing on higher energy prices, enabling it to produce a robust free cash flow (or FCF). 

Consequently, it has more money to allocate to investors and has done a brilliant job of utilizing its cash to grow value for its stockholders. Though it’s held up well this year, it trades roughly 15% to 20% lower than its intrinsic value.

Chevron remains arguably the best long-term investment in the sphere. As discussed by its CFO, Pierre Breber, its priority is to “invest and grow both traditional and new energy.” Accordingly, it’s investing 80% more in advancing its investments in the first half of this year compared to the prior-year period.

In addition to its traditional business, it invests in its low-carbon segment. It is already one of the leading producers of renewable fuels with its $3 billion acquisition of Renewable Energy Group. These investments, however, haven’t impacted its robust dividend profile, which boasts a 3.60% yield with 34 consecutive years of dividend payout growth.

Marathon Oil (MRO)

Marathon Oil (NYSE:MRO) is a leading oil and gas exploration and production firm. It’s had an incredible 12 months on the back of stellar results from the energy sector. In the process, MRO has significantly increased its free cash flows and capital return policies, enabling it to become remarkably profitable despite scaling down over the past ten years.

Marathon has been a cash-generating machine in the past couple of years. It earned a whopping FCF of over 1.3 billion in the second quarter. That number has jumped over 24%, with the renewed strength in the market. Hence, it expects to wrap up the year with a mind-boggling $4.5 billion in FCF.

The most attractive element of MRO is its friendly and clear-cut shareholder rewards program. Its policies are primarily geared towards share repurchases over dividends, though, with it buying $760 million in shares in the second quarter. Nevertheless, it yields a relatively strong 1.4%. Despite its rock-solid results, its stock trades at just 1.9 forward sales, significantly lower than its 5-year average.

Vermilion Energy (VET)

Vermilion Energy (NYSE:VET) is a Canadian oil and gas producer operating in North America, Europe, and Australia. Its stock has been bid up recently for its substantial exposure to European natural gas. Its acquisition of a larger stake in the Corrib gas project is set to pay off significantly next year.

Vermilion had previously projected it would make $1.5 billion in FCF in 2023 and $1.2 billion in 2024 at current prices when oil prices were on the move. However, with the rising natural gas prices, it is poised to make significantly more, resulting in higher returns for its stockholders. 

Moreover, natural gas prices in the European region are expected to be over four times the price of oil next year and roughly three times the following year, which bodes remarkably well for VET stock over the long term. However, that upside hasn’t been priced in, which makes VET an incredible wager over the next couple of years.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.