Oil investments are considered ideal ways to earn good yields alongside other investing options such as equities, real estate and agricultural commodities. Most investors take on this energy commodity because it has been in use for ages, and the demand and supply is not about to end anytime soon. As industrialization continues in all parts of the world, the need for energy is increasing. As it is, governments of various countries are searching for affordable and available commodities. Therefore, investors are assured that demand for this commodity is bound to go on.
In addition, this energy industry gets sufficient attention from governments and countries with policies geared towards creating a steady supply, and development of the production process. Hence, investors get favorable taxation policies because failure to develop this industry can take several countries under.
Things You Should Know About Oil Investments
Prices in the energy market fluctuate unexpectedly. An investor bears the burden of losing yields when the market becomes hostile. Most importantly, the price of this energy commodity changes with:The demand- By 2008, the world needed about 87m barrels daily, but the demand can change with the political and economic changes taking place in the present generation. For example, when a country introduces subsidies, the demand increases at the expense of the producer. It leads to lower production levels because the producer hopes to remain profitable despite the political policy of the land.
It would also be disappointing for investors when demand goes down due to introduction of another energy source that is cheaper to produce and supply.Increase or decrease in supply-politically instigated wars affect production in many parts of the world and it can bring the overall supply low within a short period. Hence, the rest of the producing countries have to shoulder the demand, and since they cannot meet the needs of every party with the expenses in production and delivery, the price goes up. It can be a blessing in disguise for investors because the increase is favorable unlike when demand is low and the price goes down.
Quality of the crude imports
Countries have strict laws that require producers to provide superior quality imports. This is because of the need to preserve the environment, and more countries are adapting to this move. Therefore, some producers may have their imports turned down.Speculative forces- speculation in the energy market is a common phenomenon. Those involved hope to hype the talk and cash in profits fast before prices normalize.
However, this does not mean the energy market is a trial and error investment option since there are thousands who are making a living out of it.
What Options Do You Have?
Changes in this energy commodity market can be an opportunity to make good yields. You can invest in the companies involved in drilling and production. In this case, buying stocks from them is a wise idea especially after you have observed how they fair in the market and it seems there is a way for you to get worthwhile returns. However, understand that stocks face the same risks as other equities. You might not get what you want especially when the fluctuation in prices is unfavorable for the production company.
You can also search for mutual funds. They allow investors to pool money, and invest in a portfolio of ventures. This can shield you from market forces because the portfolio includes the best performing companies meaning you have a substantial return. The greatest trouble for would be investors is finding the right company, and investment option. This process involves searching for a market leader and evaluating the rate of return. That is why it is advisable to use experts like in the case of fund managers because they compile a portfolio of the best companies in the market.
Another popular way to invest in the energy market is exchange traded funds commonly known as EFTs. These might be stocks or derivative and future contracts in oil investments. They differ from investing in company stocks. You can choose this commodity only or diversify your portfolio with a number of other energy commodities like gas. Future contracts allow investors to trade in production to be delivered in future. It hedges the producer from the risks associated with changes in market prices.
This article was written by James Bishop whom writes exclusively for the safe investments website. His expert financial advice is helping people across the globe investing money wisely and therefore understand how to invest for maximum profitability.