Oil prices have been quite unpredictable since they surpassed $140 per barrel in 2008. Oil prices have continued to plummet since then, however, when the Organization of the Petroleum Exporting Countries and 11 other top producers of the fuel decided to decrease production by roughly 1.8 million barrels a day, many investors expected oil prices to rise. However, at the end of the first quarter of 2017, oil prices were still not as high as investors had originally hoped for.
As Faith Birol, executive director of the International Energy Agency, notes, “There is a tremendous amount of stock in the markets and to expect a major increase in the price is not very realistic.” Elaborating further, Birol said that downward oil price pressure will stem from other products. According to Birol, “if we see the prices go up as a result of any push from the producers . . . we will see more oil coming to the market, not just from the US; we will also see Brazilian and Canadian oil coming to the market.”
As a result of the volatility of the oil market, many investors are questioning whether or not now is the time to get involved in the oil market. With that in mind, here is a brief overview on how to invest in oil.
Options for Investing in Oil: Futures and Exchange-Traded Funds
When investing in oil, an individual has numerous options to choose from. These options include direct methods like purchasing oil futures as well as purchasing low-risk exchange-traded funds. Keep in mind, however, that purchasing oil futures can be unpredictable with high risk involved. Exchange-traded funds include the following: the iShares Global Energy Sector ETF (BMV:$IXC), or mutual funds such as the T. Rowe Price New Era Fund (MUTF:$PRNEX).
For an average trader, futures trading might prove to be a difficult a route as it requires carrying out an action. If, however, you are in the loop with current oil prices, here are a few futures contracts that are currently being offered on the NYMEX, which is one out of the four exchanges that make up the CME Group: E-mini Crude Oil, Light Sweet Crude Oil, Brent Crude, the Crude Oil Volatility Index (INDEXCBOE:$OVX), and RBOB Gasoline.
Mentioned previously, ETFs provide investors with a way of investing in the market at a lower risk. This is due to investors being able to gain access to a diversified portfolio while managing and tracking one single stock.
In addition to the iShares Global Energy Sector ETF, various other exchange-traded funds include: the United States Oil Fund (NYSEARCA:$USO), the United States Brent Oil Fund (NYSEARCA:$BNO), the iPath S&P GSCI Crude Oil Total Return (NYSEARCA:$OIL), the Energy Select Sector SPDR (NYSEARCA:$XLE), the United States 12 Month Oil Fund (NYSEARCA:$USL), the PowerShares DB Oil Fund (NYSEARCA:$DBO), the United States Gasoline Fund LP (NYSEARCA:$UGA), and last but not least, the SPDR S&P Oil and Gas Explore & Product (NYSEARCA:$XOP).
Options for Investing in Oil: Stocks
If not futures and exchange-traded funds, one can invest in oil development, exploration, and production companies. According to Commodity HQ, some major companies which offer advanced dividend options with high liquidity include ConocoPhillips (NYSE:$COP), Exxon Mobil (NYSE:$XOM), Transocean (NYSE:$RIG) and Anadarko Petroleum (NYSE:$APC).
The editor and publisher of the Oil and Gas Investments Bulletin, Keith Schaefer, has stated that along with the major companies, there are a few smaller oil companies in which he believes that oil-focused investors should keep an eye on. These companies are as follows, Select Sands (CVE:$SNS), Cardinal Energy (TSE:$CJ), and Resolute Energy (NYSE:$REN). Additionally, Darrell Bishop, head of energy research of Haywood Securities, has stated that Canada has growing potential in the oil market and investors should be on the lookout for Parex Resources (TSE:$PXT) and Blackbird Energy (CVE:$BBI).
Featured Image: depositphotos/Iurii
