In 2015 the oil price dropped. The way it went down, analysts started predicting $10 a barrel. In 2008 I learned a very valuable lesson, analysts are mostly wrong. So, I learned to ignore them. And in 2015, ignoring them paid off.
In USA production of 1 barrel crude used to ost more than $60. Now some explorers can produce crude on $40 a barrel. Anyway, $10 was not possible. Saudi Arabia was not going to sell oil on a discount. This was pretty easy to guess.
How To Invest In Oil With Little Money? With little money, buying an oil well that has oil left in it is like a daydream. could buy few barrels of crude oil with little money. But then how do I use that crude oil? What I did was purchased oil exploring companies. The stock prices tanked because the product they were digging up was going down and nobody knew where the price would go.
I made a mistake, I started purchasing oil explorers stock when crude was around $50. You have to understand crude was dropping from over $100 a barrel. As a result, my stocks were down by 45% at a time.
It is difficult to guess the geopolitical situation and hence the oil price. I will give you a few examples. If something happens in the middle east that THREAT OIL SUPPLY the price of crude will go up instantly.
And more oil price is better for most oil-producing countries and companies. Then say, oil price goes down too much, in that case, companies that produce oil a higher cost will have to shut operation, as a result, oil production will go down, and as a result, the oil price will come up again.
And, if we are talking about oil producers or explorers, the higher oil price is better for them. That means stock prices will rise.
Where can I invest When Oil Price goes Down?
When oil price goes down, we need to check downstream companies, which use oil as raw material, such as lubricants, paint, etc. This means stock prices will rise.
What is Future of Oil?
As we move towards electric cars in the future, it will be interesting to see what happens to global oil demand. Many large energy companies are also producing natural gas because it is relatively cleaner fuel. The main idea is even if the revenue drops from oil, they will be able to sell more natural gas and make money.
When to Invest in Oil?
While selecting the oil producer stock, always focus on crude price. The crude price drops when there is a recession coming, or there is too much oil. As the stock price of the oil producer drops with crude, we have to buy those stocks cheaply, and as the economy goes up, and stock price recovers, we will sell.
Why not buy direct Crude?
If you buy the direct commodity, there is a huge risk involved. Say the crude price does not go up for 5 years. You need to store the crude, in physical form or a contract, you are not getting paid while you wait.
If you buy stocks, you will at least get dividends. And with a lower stock price, the yield will be pretty good. Way better than what you make in a savings account today.