Oil Investing For Dummies

[Posted on February 23rd, 2015 by Michael L. F. Slavin]


If you’ve decided that it’s time to invest in oil, but aren’t sure of how to do it, then this is a great place to start. There’re a few different ways we’re going to cover, and each one has its advantages and disadvantages. The way that works best for you is limited by how much time or money you are willing to invest in your new venture, as well as what type of investing you’re interested in. That said, if you’re ready to approach oil investing, one of the ways below will most likely make sense.

Exchange Traded Funds (ETF’s)

The first approach to oil investing is often the ETF. One thing that’s very important to remember is that ETF’s often lag far behind the shifting price of oil itself, and are therefore not typically value investments, meaning they aren’t bought for long-term returns. ETF’s basically operate behind the price of oil and then sell their holdings to a penalty before having to take possession. The main value of an ETF is for speculation, as day traders use. They have a value as a (very) short-term investment vehicle, but little else.

Smaller Oil Stocks

Smaller ventures often have public shares, but can still produce great returns. One hedge fund specializing in picking up on undervalued stocks looks for energy stocks such as smaller oil ventures to drop in price to buy them up. Their criteria? Continued operation in the face of reduced investment. One of their most recent investments was travelling at $7.24 Canadian a share when they bought in. Working with smaller energy stocks, while sometimes risky, can produce great returns if you do your research. One consideration when potentially investing is that 10% of the world’s oil supply comes domestically, due to advances in the science of tight oil, making previously inaccessible oil available for extraction.

Established Oil Stocks

If you’re more interested in established stocks, there’s a wealth of resources available to look at. The first is, of course, a list of top-producing energy stocks. Now that you’ve narrowed down the stocks you want to, say, around 50, we can break that down further. Researching and following trends with established stocks is a decent future predictor of performance. One very important group– when investing in oil stocks– to consider in investing is known as the “Big Oil” group, which includes companies such as ExxonMobil and BP. These companies have high production and are largely considered good, stable investments.

Joint Ventures

By far the most involved– but the most rewarding– way to get directly involved in oil investing is by getting involved in a joint venture– investing directly into an oil project. This method requires a little more research, and often requires more capital in comparison to the options above, but gives you direct, involved ownership as well as direct returns on your investment. Some successful oil companies offer investment opportunities on a per-venture basis giving you direct access into your own personal sector of the oil market. If you research in advance and are willing to invest more directly in oil production than the above options, a joint venture may be what you are looking for.

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