The question of how to invest in oil is a good one, especially since many investors are fearful of investing in stocks due to the volatile market and the high possibility of losing money. Many people prefer to invest in bonds or mutual funds to protect their savings. When it comes to oil, however, bonds and mutual funds just don’t perform as well as they should. This is because oil is a very difficult commodity to sell for a stock investor. This is why you need to take special steps to ensure that your investments in oil are doing well.
Oil is a very volatile commodity and it has been hit very hard in recent years. There are three good ways of how to invest in oil which suit different investors. First of all there are the “top dogs” – those who have the best chance of doing well. These are the oil companies that have the biggest stakes in the oil market – the bigger the stakes the higher the chances that you will make money. For example Total of France, GERD (German frickand fryer), British Petroleum, Enron, BP, Royal Dutch Shell, Venezuela, and Norway Petroleum. All of these companies have stakes in oil, but some are much bigger than others.
Another way of how to invest in oil is through futures and options contracts. These types of investment provide you with an opportunity to buy oil today at a low price and then deliver it to your market tomorrow for a profit. For this you need to look to companies like Enron, Exxon Mobile, Marathon, Gulf Coast Refineries, and EPCOT – the winners in the area of oil and gas.
Of course, you can always invest via the direct purchase of oil itself, but this is not always the best way of how to invest in oil. For one thing, most of what you pay for oil is in the form of production cost – which includes operating expenses such as labor, infrastructure, and the cost of acquiring and storing the crude. When you take all of this into account, it becomes clear that you need to invest in something that will deliver you commodities at whatever price increases over time. This is exactly where futures and options come in handy.
The best way to learn how to invest in oil and gas is to go with the experts and use a futures and options brokerage firm. Most firms will allow you to trade in the open market. Others however will charge a commission per trade that you execute. With the futures side of things you get to choose which crude you wish to invest in – either today or tomorrow. If you know that crude prices will go up, you can sell right then and there; if you are confident that they will remain flat you can hold onto your position and wait to see how the price goes.
With physical crude oil futures contracts there are two ways that you can trade: physically, or electronically. Trading electronically is preferable because it is more convenient; you can buy and sell as you need to without having to drive to a brokerage office or wait for an open market day. Physical trades usually happen during market hours, which are typically earlier in the day when the supply is low and more expensive than when the supply is high. There are also differences between electronic and physical commodity exchanges such as the EIA and the XLN.
Both types of investing have their advantages and disadvantages, which should be carefully considered. An investor must determine how he or she plans to use the money received from each investment. For example, if the investment is intended to pay for educational expenses or buy a home, a broker may not be the best person for the job. On the other hand, investing in commodities offers flexibility that most investors don’t have when working with brokerage accounts. This includes the ability to invest internationally and to stay updated on oil prices and other global news.
As oil prices fluctuate, some investors have more success than others when they are watching the price movements closely. This is because some investors choose to trade only when the price of a barrel of oil changes by one percent. Other investors, who do not keep track of global demand, will usually lose money when the price fluctuates between two percent and five percent. However, those who are able to watch the market regularly will make consistent profits. Those who start investing the traditional way should start with a small amount of money, while those who work with brokers or take advantage of special programs for the Internet should start with larger amounts. No matter how investors decide how to invest in oil, the best course of action is still to diversify and invest in other assets.