Oil investing is one of the most controversial facets of the stock and commodities markets. Everyone from Wall Street brokers to retail investors wonders whether they should put their money in oil.
I always tell my subscribers to avoid making decisions before they have all the facts. The more you know about oil investing, the better. Focus on educating yourself on the market, including investor and consumer sentiment, so you don’t kick yourself when you miss a potentially profitable play.
To start you on your journey, I’ve come up with four facts you don’t know about oil investing, but should. Expect to call your broker as soon as you’re done reading — or, at the very least, start watching oil stocks more regularly.
1. The Average American Household Consumes $2,000 of Gasoline Per Year
According to the EIA, American households devote approximately $2,000 to gassing up their cars each year. This is down from its peak of about $2,700, but it’s still significant.
People need to get places. Even if Americans and other people around the world aren’t driving, they’re taking public transportation or calling Ubers. This is especially true in suburban and urban areas and cities that aren’t particularly walkable.
As much as we might hate to admit it, we need gasoline to get around. Hybrid and electric cars exist, but they’re many years away from becoming universally accessible, even to middle-class Americans.
Evolution takes time. Many people don’t trust electric cars or bemoan the fact that they have to think about charging their cars rather than just stopping at the pump. This time is what gives oil investing its shine — people still need gas.
Of course, oil is used for the manufacturing of many other things, from plastic to pavement. The petroleum industry has taken a few hits over the years, but there are still many investable companies to help beef up your portfolio.
2. Volatility Is the Number One Reason to Try Oil Investing
When you look at a stock chart, you want to see significant volatility. This concept refers to the price action of a particular stock. If it’s flatlined, there’s no reason to invest. But if it’s moving up and down, you have the potential to cash in.
Oil investing is a great investment because its stocks are notoriously volatile. As market sentiment changes and as news emerges on CNN, investors either buy in or sell. Savvy investors know how to take advantage of both the upside and the downside, so volatility doesn’t have to mean huge losses if you’re unsure of the price action.
Paying attention to days, weeks, or months of support and resistance can make you more confident in oil investing. If you see a steadily rising resistance relative to support, you can buy shares in that stock and ride the wave until you see signs that it might start to drop.
Just remember that volatility is nothing without volume. Some of the smaller oil companies might experience lots of volatility in the small dollar ranges, but have low volume. This means that there aren’t many investors trading shares.
Avoid those companies during your oil price investing efforts. Look for lots of shares moving back and forth between buyers and sellers, especially over a long period of time. If the price action happens to move against you, you’ll want to be able to exit your position quickly and avoid taking a big hit to your brokerage account balance.
3. Oil Price Investing Is Relatively Safe During Economic Downturns
Certain companies flail during economic downturns. Luxury brands, for instance, often lose a significant portion of their revenue. The same goes for vehicle manufacturers, real estate agents and brokers, and hospitality.
However, there are two types of businesses that flourish during recessions: those that provide necessities and those that provide comfort.
People still need to put gas in their cars during a recession. They need toilet paper, cleaning supplies, and food. Additionally, people comfort themselves on bar stools, with cable television, and on low-cost entertainment, such as movie theaters.
If you learn oil investing now, you’ll be able to keep investing profitably even if the economy begins to flounder. We’ve had several good years ever since the bailouts that occurred during 2008 and 2009. But a downturn will eventually occur again, and you’ll want to be ready with good oil price investing skills.
4. Exxon and Shell Aren’t the Only Investable Companies
When people think of oil investing, they picture Exxon, Shell, and Halliburton. These aren’t the only investable companies. In fact, while I recommend long-term investments in large, stable companies, you can often profit more from oil investing when you target the younger, smaller outfits.
These companies might not have as much cash flow, but they’re hungry. They’re also more volatile because of their instability.
Oil investing for short-term profits can help boost your income investing cash flow and introduce new ways to build your wealth. When I send out my profit alerts to subscribers, I’m often focused on these smaller companies because I can predict their price movements with surprising accuracy.
You might look for companies that make the heavy machinery that larger companies use for drilling, fracking, and other processes. There are many avenues to take, and oil is one of the largest sectors in the stock market.
Are you interested in oil investing? Have you tried it? You might want to think about shifting at least part of your investments to the oil industry.
This includes the smaller companies that have lots of volatility and volume. They cost less per share, so you can buy (or short) larger positions. And since oil is a necessity on which we depend — at least for now — you can count on oil price investing no matter what the economy does.
Consider the makeup of your investment portfolio and make sure it has some oil stocks in it. If it doesn’t, start oil investing now.