Investing in oil and gas can be quite lucrative when done right although huge price fluctuations can be very confusing for both seasoned and newbie investors. It is important to understand the forces driving the oil markets and how you can have a solid financial stake in oil for your investment portfolio. In this blog post, we will discuss some points that will give you a broad overview of how to become a successful oil and gas investor. Read on.
Understand the Impact of Demand and Supply
As a commodity, the price fluctuation of oil significantly depends on the forces of demand and supply. When the oil prices rise, it decreases demand in the US but increases it in emerging economies as they are still industrializing and oil is a major driver of economic growth. On the supply side, the budget for oil exploration has been cut significantly, which has resulted in the number of new reserves found since 2014 falling. Most OPEC countries do not have the capacity to pump much more oil and decreased production entails decreased supply, leading to price hikes in the oil markets.
Keep an Eye on Oil Price Speculations
Apart from demand and supply, there are other factors that affect the oil prices. For example, investors speculate on oil futures contracts’ impact on oil prices. Additionally, political and global phenomena can also cause fluctuations in oil markets. For example, amid the COVID-19 pandemic and economic slowdown, oil prices collapsed because of steep drops in demand.
Learn About the Quality of Oil
Many people might not know but crude oil differs in quality. Sweet crude is the most preferable quality by refineries as it is easier to refine according to stringent environmental standards, particularly in the US. This also has an impact on oil prices as the US has to import oil even though oil production is rising on the domestic scene. The location where the oil is being pumped also has an impact on the quality. For example, the oil pumped in Texas, Louisiana, and North Dakota is light and sweet crude, which is ideal for refining into gasoline.
Explore Various Oil Investment Options
Regardless of the forces impacting oil prices in the markets, there are plenty of options when looking to invest in oil markets and profit from energy price fluctuations. Bulk oil trading in derivative markets using futures and options contracts is possible but may not be ideal or feasible for individual investors. There are several other ways to include oil investments in your investment portfolio. One easy way is through buying stocks of drilling and service companies. You can also get indirect investment in oil by purchasing energy-sector ETFs. There are also some energy-sector mutual funds that mainly invest in energy-related stocks.
The Bottom Line
Becoming an oil and gas investor is possible through a diverse range of investment options. As with all investments, it is recommended to do proper research and consult an investment service that specializes in helping oil and gas investors attain their investment objectives. If you are planning to take up oil and gas investing, contact Main Oak Capital. Our team of experts will help you grow your portfolio with proven and promising investment opportunities that are focused on asset appreciation and revenue generation along with tax benefits. Connect with one of our specialists to discuss your investment requirements and goals at (972) 544-1645 or email info@mainoakcapital.com.
