With oil being one of the most valuable assets on earth, you might want to know how to invest in oil. Oil has a vital link to the economies of the emerging and developed countries. It can be a driver of the economy and an indicator of economic health. However, oil is a volatile commodity for investors. Just like other products, oil price is intrinsically linked to supply and demand economics.
Investing in Oil
Nevertheless, with more companies that depend on oil for production purposes emerging in most countries, the global oil supply might come short of meeting the global oil demand in the future. This makes investing in oil a wise move. As an investor, you can invest in oil in the following ways.
One of the best ways of investing in oil is investing in a company in the oil industry. For instance, you can buy shares of a company that engages in the exploration, production as well as distribution of oil. However, always remember that commodity stocks are very volatile. Therefore, consider spreading investments to avoid being affected by this volatility. An oil company that diversifies its activities can prevent a fall in its stock prices and this is the best investment option for you.
Most funds are exposed to oil because companies that deal in resources and commodities play a huge role in Financial Times Stock Exchange Index. Commodities like oil are not easy to avoid for most businesses. This is why many top portfolios have invested heavily in oil or stocks that are related to oil.
Exchange traded funds
Another way of investing in oil is using Exchange Traded Commodity (ETC) whose focus is on oil or Exchange Traded Funds (ETFs). Exchange Traded Funds reflect the performance of a particular market or index and as an investor, you can trade them the way you would trade ordinary shares. However, these are not affected by the charges of stamp duty. The popularity of these funds is rising at a very fast rate.
Know when to invest
Perhaps, you might be wondering whether this is the time for investing in oil. This depends on the projection of oil price. If oil price continues to fall, then this is not the right time. However, if oil price indicates an upward trend, this is the time to invest because your investment will bring good returns in the future. Consider any of these ways on how to invest in oil and choose one that suits you best. However, exercise maximum caution to avoid making the wrong move.