How to Invest in Oil

  • There are various investment vehicles to choose from when investing in oil, including stocks, ETFs, futures.
  • Oil prices have been low for a few years now, and such low prices are said to be overdone with an imminent rise in prices in the near future.
  • When oil prices are low, investors may be better off investing in companies such as refineries that tend to benefit when prices are down.
How to invest in oil
Oil refineries may be great investments when oil prices are down.

Investors have a myriad of options when it comes to where to park their capital, but investing in oil comes with a number of benefits: hedging, regular income through dividends, and global growth. There are a variety of ways to invest in oil – either directly or indirectly – each of which comes with its own inherent risk levels.

Of course, the most obvious way to invest in oil is to buy stocks. However, another increasingly popular way to directly own oil is to purchase commodity-based oil exchange-traded funds (ETFs), which trade on a stock exchange just like a regular stock and can be bought and sold in much the same way. Another direct method of investing in oil is to buy oil futures or oil futures options. This method is reserved for those with a high tolerance for risk and plenty of experience in this realm as futures are highly volatile. A lot of research and plenty of capital is needed to successfully invest in futures.

Gaining indirect exposure to oil is also possible by purchasing energy-sector ETFs or energy-sector mutual funds which invest in the stocks of oil and are typically not very risky in nature.

Where do I invest when oil prices are down?

Energy service companies tend to be more vulnerable to lower oil prices. These firms generally provide the rigs, equipment, and other components needed to extract crude oil. Just recently, the number of rigs in operation in North America plummeted, which would inevitably cause share prices of energy-service companies like these to drop.

The same applies to oil exploration and production companies that look for oil and gas and pump it out of the ground when it is eventually found. When oil prices drop, the value of assets of these companies are significantly slashed. Investing in stocks such as these heavily depends on the price of oil.

On the other hand, such a risk is not as imminent with integrated energy companies. These types of firms make money from production, refining, chemical manufacturing, and eventually selling to consumers through gas stations. These types of companies may receive less revenue from selling crude oil when the price of oil drops, but since crude oil is critical for the production of gasoline and petrochemicals, they make more money in their downstream businesses.

Thanks to this balance between various points of operation, these integrated companies are able to maintain profitability. Even as oil prices plummet, companies like these – such as Chevron (NYSE: CVX) and ExxonMobil (NYSE: XOM) – don’t typically experience a drastic drop in stock prices even as the price of a barrel sinks. These companies are big enough and their balance sheets are typically solid enough to withstand any dramatic drops in the price of oil. Even in an extended low oil price environment, these companies can offer investors a decent dividend. Once oil prices go back up – and they always do – investors can reap the rewards of a jump in price, too.

Where do I invest when oil is cheap?

A big drop in oil prices could provide investors with an opportunity to buy low and hold until prices inevitably rise. However, a low oil price environment could stick around for a long time, which would be great for consumers but not so much for shareholders of energy companies.

Regardless of how long the price of oil remains low, it will eventually rise. History has shown that the cycle of oil prices repeats itself, albeit with different variations.

Having said that, there are certain industries that benefit when oil prices are cheap: those that depend on fuel, such as the transportation industry, and those that rely on consumer spending.

Shipping and freight companies benefit from cheaper oil because fuel costs are a huge expense for these industries. However, cheap oil prices aren’t necessarily a guarantee for gains in stock prices, so it’s important to be wary of where you park your capital.

Airlines benefit a great deal from lower oil prices because fuel is among their most significant expenses. Airline stocks often realize strong gains as oil prices drop, which was seen in the latter portion of 2014.

Consumers are more apt to buy when fuel prices are low, just for the simple fact that it’s cheaper to drive to brick-and-mortar retail stores, and they have more money in their pockets after spending less at the gas pumps. Even though consumers are more likely to spend the money they’ve saved on cheaper gas for leisurely things, a lot of their expanded budget will also go towards staples such as food and drink.

Where do I invest when oil is down?

When oil prices fall, there are specific industries that tend to benefit, and therefore benefit investors at the same time. More specifically, industries such as airlines and transportation are at an advantage when oil is down, considering the fact that oil is a direct and major cost for them. Lower oil prices boost their profitability.

The other industries that benefit when oil is down are those that rely heavily on consumer spending. When people spend less money at the gas pumps, they inevitably have more money leftover in the form of disposable income to be put towards other types of purchases. Investing in companies that are directly involved in these industries can be profitable for investors when oil prices are low.

Where do I invest when oil prices fall?

Consumers love it when oil prices are down. After all, it costs a lot less to fill their gas tanks when oil prices fall. Less money spent at gas stations means more money left in their pockets. With more money to spend, industries that depend on heightened consumer spending can stand to benefit. This includes consumer staples as well as entertainment.

Transportation and airline companies also enjoy cheaper oil prices, as it significantly cuts down on their fuel costs. With a slash in fuel prices inevitably comes a boost in profitability, as it will require less capital to operate their fleet of vehicles. When crude oil prices tanked in 2015, sectors such as these that benefit from cheaper oil prices outperformed the S&P 500 with major gains.

Where can I invest in oil?

There are three main ways to invest in oil, depending on the precise strategy you want to use:

Oil stocks – You can profit by purchasing oil stock when prices are low, then selling when prices rise.

Oil Exchange-Traded Funds (ETFs) – If you don’t want to have to go through a list of each individual oil stock, then you may want to consider buying oil exchange-traded funds which provide you with a basket of oil company stocks in one convenient fund.

Oil futures – Buying oil futures may be a viable option for sophisticated investors. They can be bought and sold on a commodity exchange like the New York Mercantile Exchange. Crude oil futures contracts are standardized agreements whereby the buyer agrees to the delivery of a certain amount of crude oil from the seller at a predetermined price based on a future delivery date. Due to the high level of risk involved, trading oil futures is not recommended for novice investors with little tolerance for risk.

Where do I invest when oil drops?

The whole point of successful investing is to buy low and sell high. When oil drops, investing in this commodity can be a sound way to grow your investment profits. Considering how low oil prices have been as of late, now may be a great time to invest in this commodity.

However, where and when you invest your capital matters. While prices of oil still remain very low, it’s impossible to predict if they’ll start rising tomorrow, or drop even further. Ideally, what investors want to find is the bottom so they can reap the rewards of an increase in oil price after buying at the lowest price possible. That’s because history has shown that the stock market tends to increase after the oil tide turns.

Investors who have a passively-traded mutual fund in their portfolio that tracks the S&P 500 already have 6% exposure to oil stocks and other energy assets. To bet more heavily on the oil sector, iShares North American S&P Natural Resources may be considered, which have repeatedly outperformed the market in the past.

How to invest in oil
The price of crude oil has been hovering near extreme lows over the past few years, with an imminent rise on the horizon.

Where do I invest when oil prices drop?

Oil prices may be very low – and have been for a while now – but an oil recovery is on the horizon. Exactly when prices will rise remains to be seen and is impossible to predict. However, history shows that the cycle of oil prices includes an upswing, helping investors who have held onto their oil stocks to realize significant gains.

When oil prices drop, exchange-traded funds (ETFs) provide a cost-effective route for small or novice investors to invest in oil. ETFs are collective investments that are aimed at mirroring the performance of a specific asset, such as an index of shares or a commodity like oil. They’re listed on stock exchanges and investors can buy and sell shares in them like stocks.

Oil can’t be stored electronically or filed like share certificates. It’s difficult to store thousands of barrels of oil, so the next best thing would be oil ETFs. Rather than placing all eggs into one basket by purchasing stocks from one or two oil-producing companies, an ETF allows investors to spread out their capital among various companies that have been researched by fund managers. It’s a much less risky way to invest in oil, even as prices drop.

Where do I invest when oil is low?

Buy low, sell high. It’s the mantra of investing. Considering the fact that oil is currently low, now may seem to be a great time to invest in this commodity. However, the best time to really buy is when oil prices have hit rock bottom. Obviously, traditional oil stocks will benefit when oil prices increase. More specifically, “upstream” companies – those that are involved in drilling for and producing oil – have a bigger incentive to continue their operations and profit at higher oil prices.

There are also oil stocks that can rise even when commodities markets are bearish. For instance, refiners have a higher profit margin when the price of oil is low. They can also market the refined product and sell the gasoline that consumers buy at gas stations. Money is made on the difference between the price of gas at the pump and the cost needed to acquire and refine the product. When oil is low, refiners keep more money in their pocket because they’re slow to adjust the end gasoline price.

How do I invest in oil when the price is low?

It’s no secret that conventional oil companies benefit when oil prices are high. However, when the price of oil drops, such stocks can suffer. Having said that, there are still plenty of oil stocks that can really take off in bearish oil markets. In particular, refining companies can earn sizeable profits when oil prices are low. They can also make money marketing and selling the refined gasoline that’s bought at the pump.

Refiners make their money when oil is low because of the difference between what’s paid at the pump versus what it costs to find, drill, extract, and refine that product. When oil prices drop, refining firms do not modify the end price of fuel, which lets them retain more money when all is said and done. Refiners offer an ideal option for investors when oil prices are low and are expected to remain so for a while still.

Where do I invest in oil in 2017?

OPEC has recently shifted gears and made two agreements to rebalance the market. This fact, combined with dropping costs and gains in efficiency, means that 2017 could be the perfect time to invest in oil stocks.

Shale-focused producers have experienced a significant transformation over the recent past. For instance, Concho Resources (NYSE: CXO) and Devon Energy (NYSE: DVN),  both started focusing their attention on cutting costs by optimizing drilling efficiencies and well completions, as well as maximizing their portfolios. Such efforts have put shale-producing companies like these in the position to start growing in 2017 at lower prices.

Where do I invest in crude oil?

Crude oil has certainly taken a beating over the last few years, but signs are pointing to a rise in prices in the foreseeable future. Should the price of crude oil start to rise some time soon, there are certain places to consider parking your capital in preparation for an inevitable increase.

Go long with ETFs – ETFs provide a somewhat conservative way to invest in oil without being exposed to a great deal of risk. They provide investors with a liquid way to get in and out of the oil market. Other more aggressive ETFs can help investors with a higher tolerance for risk to capture more of an upside move in crude oil prices.

Go long on stocks – The recent slump in oil prices seems to be overdone, so getting into stocks today can help ensure investors are buying as low as possible and benefit from higher oil prices.

Where do I invest in oil stocks?

Before investing in oil stocks, it’s important to do your due diligence and conduct some background research on the types of companies you’ve narrowed your choices to. Given the current low-price environment that crude oil has been in over the past few years, as well as the imminent rise in prices, now may be an ideal time to get into the oil sector.

Look for companies that score well with analysts in terms of value, growth, and momentum. Pinpoint companies that also pay out handsome dividends so you can collect a nice income while you wait for oil prices to rebound.

How to invest in oil
Consumers have been enjoying paying less at the gas pump with low oil prices, but many stocks have suffered as a result.

Where do I invest in oil now?

Just like any other type of investment, researching the background of a company is critical before going long on a stock. It’s important to ensure the company’s books are in good order and that its management and cost-cutting strategies are sound.

It’s also important to identify where a company stands in a particular sector before investing. In terms of oil stocks, it’s helpful to determine where oil prices are at, where they’re expected to go, and the role that a certain company plays in the sector.

A general rule of thumb is to buy oil drillers if it’s anticipated that oil prices are slated to increase soon, and buy refiners if oil prices are expected to fall.

Where do I invest in oil and gas?

The most popular places to invest in oil and gas – especially for novice investors or those with a low risk tolerance or capital – are with stocks or exchange-traded funds (ETFs). After deciding on the type of company to invest in, choose how concentrated the investment should ideally be. After conducting the necessary research and identifying the right company, you may want to buy only one or two different stocks.

Alternatively, if you’re not set on just one particular company but still have a solid idea of where crude oil prices are, buying an exchange-traded fund that trades much like a stock but offers exposure to various names in the industry may be the way to go. ETFs have skyrocketed in popularity over the past few years, particularly in the commodities sector.

Where do I invest in oil?

Before you determine where to invest in oil, it’s important to first decide where you stand on oil prices. Identify what the price of a barrel of oil is right now and where oil prices are expected to go from here. This is probably the most important factor to determine, and it will depend on a number of variables.

Commodity levels – including oil – are determined by global supply and demand. These are the two biggest forces to consider. For instance, the ongoing decline in oil prices that started in 2014 came as a result of a huge supply glut, caused in part by U.S. oil companies drastically boosting production, which was fueled by shale drilling and new advances in innovative fracking technology.

Other factors, including OPEC production decisions, the economic climate, and the strength of the U.S. dollar also contribute a great deal to the price of a barrel of oil.

From there, it’s important to invest accordingly. Clearly, the majority of companies that are considered oil stocks reap the advantages of rising prices in oil.  In particular, companies that drill for oil and produce it – referred to as “upstream” companies – stand to profit when oil prices are high. Yet other types of oil stocks can benefit even when oil prices are low. Refiners, in particular, earn a higher profit when oil prices drop.

In general, buy driller company stocks if crude oil prices will increase, and buy refiner company stocks if they’re anticipated to fall.

Which fidelity funds invest in oil?

Fidelity Investments manages many mutual funds and offers advice on fund distribution and investments, among other services. When it comes to which fidelity funds invest in oil, look at Fidelity® Select Energy Portfolio (MUTF: FSENX). This particular fund is focused on capital appreciation and typically invests a minimum of 80 percent of assets in securities of firms that are predominantly involved in the energy field, including oil.

This fund invests in domestic and foreign energy companies and focuses mainly on common stocks. Risks are managed with this fund because of the effort made to analyze the fundamentals of each issuer’s financial health and industry position, in addition to economic and market conditions when choosing investments.

How do I invest in oil ETFs?

Oil commodity exchange-traded funds (ETFs) provide a simple means of exposing your investment strategy to oil prices without actually owning the oil itself. Oil ETFs are comprised of either oil company stocks or futures contracts to track oil prices, and sometimes even oil-related indexes.

Many investors like the idea of investing in oil ETFs because of how simple the trade can be. Rather than making individual purchases in different oil company stocks, an ETF has them all in one basket. Investors can also benefit from not having to pay any capital gains taxes until the sale of the fund, as well as lower fees.

Before investing in an oil ETF, it’s important to first conduct thorough research, track the performance of oil prices, and observe how some of the big oil ETFs react to various market conditions.

Analyze basic information about the oil sector and look into the objectives and holdings within an individual ETF. Keep in mind that not all oil and energy sector ETFs are the same. Some oil ETFs might not accurately track the movement of oil’s price if the fund is focused on purchasing oil futures contracts instead of stocks in individual oil-related companies.

To start, some ETFs worth checking out in order to capture the price movements of oil include:

  • U.S. Oil Fund ETF (NYSEARCA: USO)
  • iPath S&P GSCI Crude Oil Total Return Index ETN (NYSEARCA: OIL)
  • PowerShares DB Oil Fund (NYSEARCA: DBO)
  • U.S. 12-Month Oil Fund (NYSEARCA: USL)

How do I invest in oil companies?

You’ve got various options when it comes to investing in oil companies. There are plenty of types of firms out there that you might want to consider investing in, but you will need to narrow down your options. To make things easier for you, here are some of the bigger and more popular types of companies to consider.

Major integrated oil stocks. Mega-cap stocks that are worth hundreds of billions of dollars – including the likes of Exxon Mobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX) – are worth looking into. Companies like these have major assets, reserves, and global reach that basically solidify their permanent existence. They offer stability and pay sizable dividends, making them great long-term portfolio assets.

Oilfield services. Companies such as Halliburton Co. (NYSE: HAL) Schlumberger Limited (NYSE: SLB) make good picks and are involved in providing the necessary equipment, technology, and analytics services that allow oil production to continue.

Refiners. Established refiners that pay sizeable dividends are good choices and have been known to rise as oil falls.

What stocks do I pick to invest in oil?

When choosing the right stocks to pick to invest in oil, it’s important to understand what influences the price of oil. This commodity tends to fluctuate in price as a result of drivers such as new oil discoveries, geopolitical events, new production and extraction technologies, and, of course, supply and demand. When picking the best oil stocks to buy, it’s important to consider all of these factors.

Having said that, to find the best oil stocks to invest in – no matter what the state of the market happens to be right now – you will need to take a good look at the fundamentals of the companies you’re considering buying from. Some important factors you’ll need to consider include:

  • What the company’s balance sheet looks like
  • How much debt the company has and whether it’s manageable
  • Revenue growth expectations
  • Types of assets the company has

Ensuring that the stocks you buy come from sound companies with robust fundamentals will help reduce your risk and increase your odds of being profitable in your investments.

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