Crude oil has been the most traded commodity since it is a necessity in the modern life. In fact, it has become an irreplaceable asset that has significantly influenced the economies of most countries among them Canada. Crude oil offers a plethora of trading opportunities to investors. For several years, an oil barrel would be priced over $100. However, the trend has taken a new path over the past few years making it a bewildering task for most new investors to keep up hence become eliminated. Analyzing and keeping up with the current trends is the best move every success-minded investor must take. Paying attention to the direction of the economy and considering proper timing on when to trade are the two critical things an investor must think of. Here are some helpful oil investment tips to aid investors.
1. OPT TO INVEST IN COMPANIES THAT CAN RESIST OIL TRADE TURN DOWNS
New and start-up oil companies have little or no experience at all compared to companies that have been around for a while. Companies that have survived various economic downturns understand the how to go about in the case of oil price recessions. Such companies have good balance sheets, earn top grade returns and generate flowing cash. Since they are well-established, they cannot be eliminated due to oil trade fluctuations. Moreover, companies that use debts can be risky to invest in. They can be the worst hit in case of oil price drops. The only time such companies can survive is during periods of high oil prices.
2. FOCUS ON THE LONG TERM ASPECT
Most young investors fail because of looking at the short term perspective. The Oil trading industry is highly volatile and would occasionally throw unexpected serious challenges to investors. Therefore, those with no prepared minds can easily be pushed away from the industry. With the current trends, investors are expected to have a prepared mind and place long-term strategies. The International Energy Agency has estimated that energy industry requires around $40 trillion to suffice the projected oil demand by the year 2035. It means that investors must have the long-term view for them to survive.
3. INVESTORS SHOULD NOT PUSH WHEN PRICES ARE LOW
Oil fluctuations can be very dramatic and would often call for patience from the investors’ part. The volatility of oil prices can be very tough sometimes. Therefore, an investor must be intelligent and do some math, evaluate the current trends in oil prices and make profitable predictions. Investors must stick to top-tier oil stocks for them to achieve their long-term goals. Fundamental analysis is the best strategy to use when evaluating trends in oil trading. Among the best methods of fundamental analysis are monthly Inter-nation Energy Agency reports, weekly U.S. crude oil inventory reports, and OPEC reports particularly the product quotas from Russia and the North Sea.
By accurately analyzing the trends in oil prices, an investor can overcome the current challenges in the oil industry and make a significant amount of money from their investment. An investor should think of the diverse range insights available in the oil industry for them to be better investors.
Over the past few years, oil prices have been surprisingly decreasing. For several years, it had originally been sold at $100 for a barrel. No one has expected it to decrease. The Organization of the Petroleum Exporting Countries (OPEC) triple digitized oil prices because most of them needed the increased sales in order to balance their budget. After this occurred, the entire world learned to accept that oil prices are beginning to weaken. OPEC even lowered their production level so that they could keep the prices high and elevated for consumers. The decrease in oil prices started when Asia started having a low oil demands a few years ago. It was in contrast with the continuous surge of petroleum production in the United States. In the late fall of 2014, OPEC made the decision that oil is already a thing of the past. Instead, they needed to protect their market share which is a policy that they put such high importance in. A valuable lesson was imparted to investors after this all happened. They’ve come to realize that the outlook for oil prices could change without any notice. It makes investing in the oil industry a very tough area to take part in. Although in reality, it also has the potential to be a very good profitable industry. Let’s discuss a few Oil Stock Investment Tips which will help you to make smarter choices.
1. THINK ABOUT LONG-TERM OUTLOOK
Short term in the oil industry is volatile so it’s important that you’re focused on the long term outlook. The industry frequently experiences a downturn which happens when oil supplies are weaker than the expected demand. The United States Energy Information Administration has predicted that the demand for global energy will increase by 40% within 2013-2035. Although that prediction shows the demand for all sources of energy, oil will still be a huge part of that rating. According to the International Energy Agency, an estimated $40 trillion in investments will be required for energy companies for the addition of energy supplies in 2035. This is to meet the projected oil demand. This data shows that the oil industry’s long-term outlook still remains to be a good investment.
2. INVEST IN COMPANIES WHICH CAN SURVIVE A DOWNTURN
Investors have to ensure that the oil companies they invest in will survive long enough in order to benefit from the future demand. Choosing the best companies to work with will be a great advantage. This is because they have already proven themselves in the market in terms of their capacity to withstand any possible challenges. Exxon Mobil and Conoco Phillips are two of the most recognized oil companies who have been continuously gaining stable profits. They have already generated a huge amount of cash flow, earned peer leading returns and have investment grade balance sheets. They are the type of companies which will be able to take on difficulties and still survive for years to come.
3. DON’T GIVE UP WHEN PROBLEMS ARISE
Investing in the oil industry, one should always keep in mind that the oil prices’ volatility could possibly result in stock volatility. Oil prices can move dramatically on any given day without warning. This is why smart investors would be patient and wise not to bail on oil stocks when downturns occur. Choosing a top tier oil stock company will make investors earn a good amount of long-term returns. A good example of this is Exxon Mobil and Conoco Phillips. Both of them did not bail on oil stocks during the 1980’s. Even though times were tough, they remained patient. Today, they are two of the most well-known oil companies in the industry because of their success stories.