Whether the oil price is down or up, the time might be ripe for investing in oil. Here’s a look at some of the ways to invest in oil.
Those watching the oil market and looking for ways to invest in oil know that the oil price has experienced a high level of volatility since soaring past US$140 per barrel in 2008.
The oil price plunged in the years following 2008’s record levels. However, in 2016 sentiment in the sector was boosted when OPEC and 11 other producers made a deal to cut oil production.
In early 2018, an oil production shortfall in Venezuela and US sanctions against Iranian exports increased fears of a global oil shortage. The reduction in supply prompted Russia and Saudi Arabia to ramp up production to ensure a shortage did not materialize.
In 2020, the energy markets have faced a curveball in the form of the coronavirus pandemic, and oil prices have undergone significant pressure, even reaching an unprecedented negative level at one point.
The spread of COVID-19 has disrupted global economies and caused a “decline in energy demand without parallel,” points out accounting and consultancy firm Deloitte in its mid-year oil and gas industry outlook. “In an industry used to the highs and lows of economic and commodity price cycles, 2020 poses great challenges to oil and gas companies,” it states.
Oil prices have rebounded significantly in 2021 on surging energy demand brought on by the lifting of lockdowns and economic recovery. After starting the year off at the US$54 per barrel level, the oil price recently reached a three year high in October settling at US$83.65 per barrel.
“The pace of economic recovery from the pandemic has supercharged energy demand at a time when oil output has slowed due to cutbacks from producing nations during the pandemic, focus on dividends by oil companies and pressure on governments to transition to cleaner energy,” reported Reuters.
Analysts believe demand for oil will not slow any time soon, but remain cautious. Although the short-term outlook for the oil market has its challenges, long-term demand is still looking positive. Deloitte advises that those oil and gas companies that “can demonstrate agility and flexibility while building new production capacity are more likely to remain competitive despite these headwinds.”
There’s no question that those circumstances have left many market participants wondering if oil is a good bet. However, some still believe now may be the perfect time to get involved in the oil market. With that in mind, the Investing News Network has put together a brief how to guide for investing in oil.
This article continues below the Oil Investing Table of Contents.
Oil Investing Table of Contents
The articles listed below provide an overview of investing in oil from Oil Investing News.
Oil Prices, Market Forecasts and Top Investment Options
Ways to invest in oil: Futures and ETFs
Those interested in investing in oil have various options, from direct methods like purchasing oil futures, which are high risk and highly volatile, to purchasing lower-risk energy sector exchange-traded funds (ETFs). Those include the iShares Global Energy Sector ETF (BMV:IXC) and mutual funds like the T. Rowe Price New Era Fund (MUTF:PRNEX).
Futures trading requires due diligence, and can be difficult for the average investor to understand. But for those in the know, here are some futures contracts offered on the NYMEX: Light Sweet Crude Oil, Brent Crude, E-mini Crude Oil, the Crude Oil Volatility Index (INDEXCBOE:OVX) and RBOB Gasoline.
As mentioned, ETFs are a great way to invest in the sector at a lower risk. That’s largely because they allow investors to gain exposure to a diversified portfolio while only having to track a single stock.
Besides the iShares Global Energy Sector ETF, other oil ETFs include the United States Oil Fund (ARCA:USO), the United States Brent Oil Fund (ARCA:BNO), the Energy Select Sector SPDR (ARCA:XLE), the United States 12 Month Oil Fund (ARCA:USL), the PowerShares DB Oil Fund (ARCA:DBO), the United States Gasoline Fund (ARCA:UGA) and the SPDR S&P Oil & Gas Explore & Product (ARCA:XOP).
Ways to invest in oil: Stocks
Of course, there’s also the option of investing in oil exploration, development and production companies. Some of the oil stocks offering strong dividend options include well-known producers like Diamondback Energy (NASDAQ:FANG), ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), Enbridge (NYSE:ENB) and EOG Resources (NYSE:EOG).
Whether you choose publicly traded oil company stocks, investing in oil futures or long-term investments, the energy sector offers plenty of ways to invest in the industry.
This is an updated version of an article originally published by the Investing News Network in 2015.
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Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.