It is no secret that the price of oil has dropped dramatically over the past year. With oil priced at under $50 per barrel, gas prices have been lowered and it is now cheaper to transport goods. There are several other benefits of low oil prices as well, including investment opportunities.
Oil is a commodity that is highly ingrained throughout the fabric of our current society. Until a cheaper and more efficient and abundant resource becomes available, oil is going to continue to dominate the energy sector. As an investor, there are several ways to benefit from the price of oil.
The falling gas and oil prices can be compared to a multi-billion-dollar tax cut for nations importing oil. This means that investors will find a number of both short term and long term investment opportunities available. The low price of gas should provide a boost to consumer spending, especially in countries like the United States where spending represents nearly 2/3 of the economy. Additionally, the lower gas prices benefit shipping companies, airlines, cruise operations, as well as other industries that have significant fuel costs. These lower costs can lead to great opportunities for investors to purchase stocks and other commodities now while the prices remain low.
Energy Company Returns
For the past ten years returns from capital investments in energy companies have been on the decline. Exploration projects that were started when oil prices were over $100 a barrel are not as viable today. The price of oil will depend directly on production and whether or not OPEC continues with its current daily production rate or decides to lower the amount of oil that is produced each day. Investors who choose to invest in oil will need to pay special attention to production rates because this will directly affect the price per barrel which in turn will affect investments.
Investing in oil can be risky as the market is quite volatile. Using the right binary options trading strategy for oil investments is one way to make money from the oil industry. This method of trading involves making a short term wager as to whether the price of oil will go up or down in a specific amount of time. While most binary options traders stick to currencies and other commodities, it is worth looking into trading oil as there is a profit to be made by trading crude oil at this time as long as the proper research is done and an appropriate trading plan is put in place.
When it comes to investing in energy related companies, there is a slight risk as the capital return has been declining over the past several years. Many portfolio managers would recommend taking a long term approach to investments in oil related stocks and bonds. In the future, valuations of these companies could fall to a point where energy related stocks will offer a great investment opportunity. However, the market might not be at this point currently.
The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.
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