Oil, often referred to as “black gold,” is the natural resource behind a significant portion of the globe’s energy usage. Because oil is needed and utilized all over the world, it makes sense that investors may view it as a viable investment product.
There are many different ways to invest in oil, either directly or indirectly, and prices are regularly quoted in almost all major financial media publications. In terms of investment vehicles, investors have a wide range of products to choose from based on their investment objectives and risk tolerance.
One of the ways to invest in oil is through an oil well. These investments are often set up as limited partnerships or similar structures. An oil well investment requires investors to put up capital for the exploration and/or drilling of an oil well. If the well produces oil profitability, investors may be entitled to a portion of the profits.
Another way to invest in oil is through oil stocks. These stocks can include oil producing companies, as well as refiners, transporters, explorers and more. An oil stock, such as Exxonmobil, may potentially rise in value through higher oil prices or profitability in its operations. In addition, stocks may also pay investors a dividend.
For speculators willing to take on significant risk, oil futures contracts traded on an exchange may be another way to bet on oil prices. These contracts allow speculators to potentially profit from both rising and falling oil prices, depending on which way the investor bets. Options contracts are also available on such contracts, and can be used to speculate on both higher or lower prices as well.
As one of the largest markets on the globe, oil investments are extremely popular. The oil market can be affected by numerous issues on both a global as well as local scale. Supply shortages, new finds, transportation issues and geopolitics can all fuel movement in the oil market. Due to the many potential inputs on oil prices, the market can see extreme levels of volatility with wild swings in price. Such wild swings, however, can potentially present viable investment and trading opportunities. Such investments also carry significant risks.
Before getting involved in the oil market, potential investors should carefully consider their objectives, financial situation and risk tolerance before putting any capital at risk.