[Posted on Jan 20, 2013 by Michael L. F. Slavin]
As an investor, you may already be aware that diversifying your portfolio is a good way to minimize the possibility of a loss and make the most of your wealth-building opportunities. Because oil is a commodity that often reacts to political and market conditions, unlike the real estate and financial markets, learning how to invest in oil can prove to be quite profitable and help you avoid extreme fluctuations in the economy.
How You Will Benefit
Impressive tax breaks are sanctioned by Internal Revenue Service (IRS) codes that were enacted more than 30 years ago. They enable you to invest in oil drilling, shelter most of the income from capital gains tax and offset any risk involved in making this kind of investment. Savvy investors who learn how to invest in oil are often amazed at these benefits, and wish they had started sooner.
Security of Your Investment
Since our reliance on oil is not expected to diminish in the foreseeable future, the demand for this commodity is expected to remain high. It is also an investment that flourishes during an economic downturn because it is less affected by the state of the economy than other investments, such as stocks and bonds.
Note that the best investment opportunities are found in proven oil fields that produce continually. They are an excellent vehicle for diversifying your portfolio and offsetting rising energy costs at the same time, if you have enough liquid assets.
Outlook for the Future
The United States will soon reduce its reliance on oil from the Middle East by about 50 percent, according to the Wall Street Journal. To some extent, this was brought about because of the current oil boom with the discovery of new oil via deep sea drilling, which is increasingly looked upon as a stable opportunity for investors. In fact, new technology in the oil and gas industry is vastly increasing production after nearly 20 years of decline.
What You Should Know
Not surprisingly, the return on your investment will be contingent on the production of the oil well. However, if you want to succeed, you will also have to do some research in order to avoid possible fraud. One of the best ways to prevent this is to only deal with companies that have been in business for many years and can provide you with references or other accreditations. It is also great when an oil company has an open-door policy and will allow you to visit their offices and your wells. This will allow you to have a first-hand experience with the people whom you are entrusting your investments with. It can also be quite exciting to be able to visit your own well and watch the drilling or completion process.