February 16, 2018 | Oil prices have fallen 15 percent in the last three weeks, and analysts are now warning that prices will only continue to decline. … Read MoreGet Oil and Gas Stock Investor Kits
Those watching the oil space know that prices for the fuel have been volatile since they soared past $140 per barrel in 2008. Prices have plunged since then, but in 2016 sentiment in the sector was boosted when OPEC and 11 other producers made a deal to cut oil output.
The agreement called for oil production to fall by almost 1.8 million barrels a day, and investors initially predicted that prices could rise substantially. But at the end of Q1 2017 prices were still not as high as some had hoped, and the supply glut had by no means been eradicated.
“There is a tremendous amount of stock in the markets and to expect a major increase in the price is not very realistic,” Faith Birol, executive director of the International Energy Agency, said at the end of March 2017. She added that downward price pressure will come from other producers.
Birol also noted, “[i]f 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.”
There’s no question that those circumstances have left many market participants cutting bullish bets on oil. However, some still believe now may be the perfect time to get involved in the oil market. With that in mind, the Investing News Network has put together a brief how-to guide for investing in oil.
Investing in oil: Futures and ETFs
There are various options for investing in oil, from direct methods like purchasing oil futures, which are high risk and highly volatile, to purchasing lower-risk energy sector exchange-traded funds (ETFs). Those include the iShares Global Energy Sector ETF (BMV:IXC), or mutual funds like the T. Rowe Price New Era Fund (MUTF:PRNEX).
Futures trading requires doing due diligence, and can be difficult for the average investor to understand. But for those in the know, here are some futures contracts currently offered on the NYMEX: Light Sweet Crude Oil, Brent Crude, E-mini Crude Oil, the Crude Oil Volatility Index (INDEXCBOE:OVX) and RBOB Gasoline.
As mentioned, ETFs are a great way to invest in the sector at a lower risk. That’s largely because they allow investors to gain exposure to a diversified portfolio while only having to track a single stock.
Besides the iShares Global Energy Sector ETF, other oil ETFs include: the iPath S&P GSCI Crude Oil Total Return (ARCA:OIL), the United States Oil Fund (ARCA:USO), the United States Brent Oil Fund (ARCA:BNO), the Energy Select Sector SPDR (ARCA:XLE), the United States 12 Month Oil Fund (ARCA:USL), the PowerShares DB Oil Fund (ARCA:DBO), the United States Gasoline Fund (ARCA:UGA) and the SPDR S&P Oil & Gas Explore & Product (ARCA:XOP).
Investing in oil: Stocks
Of course, there’s also the option of investing in oil exploration, development and production companies. Commodity HQ has recommended a number of major companies, many of which offer strong dividend options and have high liquidity, such as ExxonMobil (NYSE:XOM), BP (NYSE:BP,LSE:BP), ConocoPhillips (NYSE:COP), Transocean (NYSE:RIG) and Anadarko Petroleum (NYSE:APC).
At the beginning of 2017, Keith Schaefer, editor and publisher of the Oil and Gas Investments Bulletin, highlighted some smaller oil companies that he believes investors should keep an eye on. Those are: Resolute Energy (NYSE:REN), Cardinal Energy (TSX:CJ) and Select Sands (CVE:SNS).
Darrell Bishop, head of energy research of Haywood Securities, discussed his favorite energy stock picks around the same time. Bishop, who is positive about Canada’s potential, suggested investors watch out for Blackbird Energy (TSX:BBI) and Parex Resources (TSX:PXT).
This description was last updated on April 10, 2017.