Many investors would tell you that buying crude oil guarantees success as long as you have the patience in waiting for its value to increase. After all, it’s a finite and scarce resource—predicted to dry up in the next century or less. When a resource becomes scarcer, it also becomes more valuable. So investing in it while it’s still far from being empty seems like a smart decision.
This year, Iran and Saudi Arabia are seen pumping oil at a faster pace. In fact, they’re producing so much that there’s currently more supply than demand. This imbalance in the inventory of oil is further fueled by the deceleration of global economy, Organization of the Petroleum Exporting Countries’ (OPEC) refusal to cut production, and the advancement of technology. So if you’re planning to put your money on crude oil, now is a high time to do it.
So how can you make a successful investment in crude oil?
There are different ways of investing in oil, spanning from those meant for active traders to those ideal for a retirement portfolio only. Here are the top 3 ways of buying oil this year:
Exchange Traded Fund (ETF) is a mutual fund that is traded on stock exchanges. It is a quick and easy way to invest in oil as it can be bought from an online broker or financial advisor. Moreover, it allows you to use additional leverage to enhance your returns. The only problem with ETF on major stock exchanges is that they don’t follow oil forecast and price movement and always face maturities and expirations. Therefore, this is good for those who are looking for a quick trade in and out of oil commodity.
Futures are the original method used in obtaining exposure to commodities. Contracts with futures account can be complex so these are not meant for average investors. It also requires you to be on the right timing with regard to the price movement. On the other hand, it is one of the most direct ways to purchase the commodity. You can buy a contract to purchase oil at a future date through a broker. If you own a major transportation company and know how to hedge oil price movement, this is the best option.
Companies like Chevron Corporation (CVX) and Royal Dutch Shell Plc. (RDS-A) can offer several opportunities for investment. Buying stocks of oil companies are uncomplicated as you can easily access them through your online broker. Its main advantage is that pays a nice dividend. It is a great option for those looking for an investment that will last for a long time. The only downside to this method is that it does not necessarily lock-step with the oil price as companies can also focus on other ventures like on exploration, pipeline, and refining.
Investing in crude oil, like other kinds of investments, is not easy. However, if you choose the right method, you’ll at least have an increased chance of success.