How to Invest in Crude Oil Like an Expert
Learn how to invest in crude oil like market experts across the country. Oil stocks are coming off a few of the worst weeks in market history. Yet, now is the time to consider opening your checkbook while the pricing is low.
There are many different avenues to oil investing. For example, you can invest in crude oil ETFs, buy up futures contracts or own physical crude oil.
Learn How to Invest in Crude Oil to Expand Your Portfolio
Let’s breakdown the many ways you can take advantage of the crude oil market. In general, there are three primary investment opportunities. Each has its own perks and drawbacks.
Crude Oil Futures Contracts
Crude oil futures contracts are a way for buyers and sellers to coordinate the delivery of physical crude oil on a specific date in the future. This can go up to nine years after the original agreement.
Each contract covers 1,000 barrels of oil and helps consumers connect with producers within the industry. There are many benefits to both the buyer and the seller.
The seller can lock in the current pricing of oil, but they will also benefit from futures prices that begin to falter. If the barrel price goes down, the seller will receive a financial credit to offset the drop in market value. However, if the price goes up, the seller will take in a loss that offsets the eventual gain they will receive through the futures contract.
Own Physical Crude Oil
Learning how to invest in crude oil can be confusing. But, one of the most straightforward strategies is to buy the oil itself. When you own actual crude oil, its value fluctuates with the market.
When the market price is up, you can make more money. When the market price is down, so is your oil. It’s as simple as that.
The only caveat is storage and the fees that come along with it. For instance, many owners of physical crude oil will have to rent massive oil tanks from refineries. This alone is a major reason why many investors sway away from purchasing physical crude oil.
Investing in Crude Oil ETFs
Exchange-traded funds (ETFs) are investment products that pool money from many investors and invest it according to the fund’s objective. ETFs look and feel exactly like stocks, and they trade just like them too. The price of an ETF can vary throughout each day.
The most common crude oil ETF is the United States Oil Fund (NYSE:USO). As of last week, it was trading lower than ever before in history.
This is all due to the coronavirus outbreak and failed talks between Russia and the Organization of the Petroleum Exporting Countries (OPEC). The virus is causing oil demands to go down worldwide, while the failed talks between OPEC and Russia are causing a price war to begin. Saudi Arabia is already cutting prices dramatically on their crude oil.
How to Invest in Crude Oil During a Volatile Market Period
The stock market volatility today is forcing long term investors to rethink their entire strategies. Is this the same for commodities? Maybe not gold, which is always consistent, but crude oil is certainly hurting at the moment.
Learn more about commodity investing with our experts at Investment U. Sign up for our daily e-letter below and you may come across the best oil tanker stocks in the market. Our team of experts will teach you how to invest in crude oil effectively during this trying time.