In this article, we look on the different ways to invest in oil. We got input from Clark Weeks and others who invest in oil.
Oil has many uses in our lives today. It fuels our vehicles. It is used in the production of chemicals and plastics. It is also used in making waxes, lubricants, asphalts, and tars. Many fertilizers and pesticides are made from oil or its by-products. The uses for oil are endless and the demand is high so it’s not surprising if people choose to capitalize in oil
For Clark Weeks, Not All Ways to Invest in Oil are Good
There are a number of ways to invest in the oil market. You can look at the industry as a group of companies that provide different kinds of products and services to consumers. On the other hand, you can look at the industry as a commodity, and profit from the price changes of crude oil, diesel, gasoline and others.
Investing in Oil Company Stocks
This is a simple way to invest in oil. I’m pretty sure you are very familiar with the names of several large oil companies such as Chevron, ExxonMobil, British Petroleum, and Royal Dutch Shell. When you purchase oil stocks, you’re more aligned with the company’s performance than the commodity’s price.
However, before buying, research the financial performance of each company. You can look at their revenues, net income, earnings per share, and debt level. Then you can buy a stock through a broker. You can immediately buy the stock and pay the best market price available or you may want to buy a stock when prices decline.
Investing into a Master Limited Partnership
This a more direct approach when investing in oil wells. Master Limited Partnership or MLP is a tax-advantaged corporate entity. It’s like a stock that is publicly traded. It gives you the tax benefits of a private partnership, meaning you only pay taxes on distributions. Investing in MLPs make you a limited partner who gains shares in the profits but are passive in how the venture is being run.
Before diving into MLPs, research their financial performance to help you decide which one to invest in. Your broker or investment advisor might have information about this or you may want to check online. Check the charging fees of MLPs and be careful of scammers.
MLPs are publicly traded. Because of this, they are easy to purchase. You can buy them online or buy a mutual fund that also invests in MLPs. This also means they are easy to get out of if you need to divest.
Investing in Mutual Funds or ETFs
This is another direct method in investing in oil. ETFs, or exchange traded funds are traded on a stock exchange. They can be sold and bought in a similar manner to that of stocks. The U.S. Oil Fund or USO is a popular ETF. You can also google other ETFs.
Do your research before investing into an ETF. Look at what the mutual fund is investing in. Most mutual funds purchase futures contracts. These are contracts where you would purchase oil at a price at a future date, hence the name. On the other hand, some ETFs invest in oil stocks. You can invest in oil ETFs through an investment advisor or an online broker.
Whatever your choice of investment, keep in mind that investing in these types of ventures, or any kind of ventures for that matter, have potential risks. Be aware of your own risk tolerance and investment horizon.
Clark Weeks Suggests You Invest in Oil Wells Themselves
For people who can handle the risk, Clark Weeks feels investing directly in the oil wells can have a much higher return. However, there is risk and it is only appropriate for some people. See our related post on this.
