How Do Oil Investors Make Profit

When we say “oil”, it is unlikely you would think of cooking oil. For most of us, that word brings images of moving vehicles and machinery, refineries, and natural gas plants. Most times you can trace the wealth of some of the richest individuals to crude oil and the reason is that crude oil is the blueprint for most combustion-based fuels. 

In fact, it is said to be the most traded commodity worldwide. Energy is integral to any line of business, so a change in the price of oil affects everything. From transportation to cost of production of various goods, and even the cooking gas we use at home. You can see how vital it is to humans at large and why we can’t do without oil and oil investment at the moment.

But, of course, we are looking for alternative energy sources in a bid to reduce greenhouse emissions. Like the case of electric cars; right now, there are countries with more electric vehicles than gas-powered ones. But it will take decades more for us to successfully phase out gas-powered cars. Most likely, it won’t even happen in our lifetime. Even at that, crude oil will still be used to power planes, ships, rockets, submarines, and many other machines. For now, this commodity isn’t going anywhere.

So how do you join in and invest? By understanding this we would also know how oil investors make a profit. Below are the common methods by which it is done.

Oil Stocks

A stock when it comes to investment refers to shares of a company. When you own a share of any company, when they lose money or make a profit, it would reflect in the value of the share. You don’t want to invest in any random firm that comes your way. This is why it is important to perform extensive research, especially when a lot of money is involved.  

Hike in oil prices affects the economy at large, visit https://www.cnbc.com/ to learn more about how to spot the signs. Your best bet when investing might be to use a mutual or index fund. Don’t know what that is? Let us help you.      

Oil mutual funds

The way a mutual funds works is, you’re given access to a collection of stocks which you can buy at once. This is especially useful for investors who wish to diversify their portfolios. If you were to invest in a specific type of fund, you would be limited to the profit and losses of that fund type. Using oil mutual funds diversifies your portfolio, therefore reducing risk. 

Oil Futures

The way futures work is that both parties agree on a pre-set price for a pre-set amount of oil. Unlike mutual and index funds, you’re not trading the actual oil when trading futures. You’re trading the contract in the hopes that when oil prices rise your contract becomes more valuable. When this happens, you can sell the contract for a profit.

It’s the same way if oil prices fall, the value of the contract reduces resulting in loss of money. It is more advanced than oil mutual funds and should be done after performing thorough research. 

Commodity ETFs and ETNs

ETFs (exchange-traded funds) are another common way to invest in the oil market. It is normally traded on an exchange that is easily accessible to the public. This makes it perfect for investors who aren’t particularly wealthy. That’s right, investing in oil isn’t just for the rich and affluent. In fact, if you have up to $40 you can definitely find an ETF share to buy. Click here to learn more about ETFs.

In essence, your Exchange provider invests in crude oil themselves and you can piggyback on them. Allowing you to enter a powerful market with little capital. They’re particularly useful for people who are interested in a short-term investment setup.

Final Thoughts

After reading this article, it is easy to see why crude oil is a strong asset to invest in. This commodity is so vital to us that cutting off its supply in a country can cripple it. Limited funds shouldn’t deter you from investing in this commodity. With the use of ETFs, you can buy a retail share as low as $30.As with all financial ventures adequately researching the type of investment you want to enter is crucial to success. 

Kenneth

Kenneth is a proud native of sydney, born and raised there. However, he pursued his education abroad and studied in Australia. Kenneth has worked as a journalist for almost a decade, making valuable contributions to prominent publications such as Yahoo News and The Verge. Currently, he serves as a journalist for The Hear Up, where he focuses on covering climate and science news. You can reach Kenneth at [email protected].