The purpose of money is to spend but also to ensure material security. So, saving is a good financial habit of people who act responsibly towards their finances. However, money that just sits there usually loses its value over time. Even saving in the bank account doesn’t bring much revenue, but at least your money is safe.

An alternative to saving is investing, that is, putting your money into good use and protecting it from negative economic trends, such as inflation. Check this web sourceto see how to protect your portfolio from inflation.

Of course, investing doesn’t mean you shouldn’t have side money. You should just set aside a portion of your savings to invest in assets that will protect and increase your wealth.

There are many different investment vehicles to add to your portfolio. The decision on where to place your money depends on your financial goals, as well as your risk appetite. In any case, your portfolio should be diversified. There should be room for assets that are more stable but less profitable and investments with a higher risk but also return.

Oil is a commodity whose price is quite volatile, so it can change very often, sometimes even several times a day. Nevertheless, the world still relies heavily on this natural resource, so the demand is still high. That can be enough of a boost to include this asset in your portfolio, of course, after you have researched it well and eventually get some expert advice.

Ways to Invest in Oil

You have probably already heard about many companies involved in oil production that operate successfully on a global level. Investing in their shares may seem like the real deal, but the fact that the organization has world fame is not a guarantee of its business success. It often happens that these corporate giants end the year with a negative balance.

However, their stocks still can be worth a lot. They’re a good option if you want to start small because you can have a share in the energy market. Moreover, you don’t have to own these assets in paper form since more and more brokers offer the option of trading digital shares.

Oil company stocks are a good option for beginners and those who never invested in this type of commodity before. On the other hand, those with more experience who want to enter the lucrative fossil fuel market can invest in futures and options. This kind of trading requires certain knowledge of the market and investment strategies and is quite risky. But if you play well, the profits can be significant.

Another indirect method of investing in oil and gas is ETFs and mutual funds. They are less risky than stocks and are linked to oil as a commodity, not directly to companies. To track their value, you have to follow the market of derivatives, not the business of a particular company.

What Drives Oil Prices

We have already mentioned that this fossil fuel is still in high demand all over the world, primarily because of its relatively affordable price and still good supply. However, the fact is that the reserves are slowly being depleted, and it’s only a matter of time before the oil supply drops drastically. It’s good to know this because it’s evident that crude oil prices will rise. Geopolitical factors such as the country’s economy should also be considered.

Oil prices can also be influenced by market participants, that is, those who have some interest in this commodity. These can be speculators and hedgers. Speculators trade with the price of this asset, not the asset itself, based on predicting whether it will rise or fall. Their intention isn’t to buy or sell but to trade futures and options.

On the other hand, hedgers are big players like producers, retailers, and big companies. They trade futures but also buy large quantities of oil for their own needs.

Reasons to Invest in Oil

The oil demand is huge nowadays, and it will remain so for some time. That creates room for an increase in the price of this asset, which is a good sign for producers, distributors, and other companies involved with this commodity. Their profits are increasing, meaning that dividends paid to shareholders can also grow. That’s a good reason to have these stocks in your portfolio, along with other inflation hedges, like gold IRA and other precious metals.

Another advantage is that you can start small. If investing in this type of goods tempts you, but you don’t want to risk too much money, you can buy a small batch or even fractional shares. As you gain more knowledge about the market and experience in trading, you can increase the share of these assets in your portfolio.

Considerations to Keep in Mind

Although very profitable, oil investments carry certain risks that are not suitable for everyone. Price volatility is something to consider when you decide whether to invest in this asset. It can vary significantly, sometimes even daily. So if you don’t have the nerve for such speculations, then this investment is not a good idea.

On the financial side, there is also a risk of dividend cuts. The oil companies whose stocks you are investing in pay dividends to their shareholders. But regardless of how well this commodity performs, that’s not a guarantee of successful business for these companies.

Finally, let’s emphasize the global tendency to replace fossil fuels with more ecological alternatives as soon as possible. Oil spills and accidents that can cause a natural disaster are a significant risk and environmental concern. So, it’s realistic to expect that alternative fuels will one day completely replace oil.

Adding oil investments to your portfolio can be a good idea, provided it’s already well-diversified. Depending on your trading strategy and financial goals, this asset can be a good way to add stability to your portfolio, yield high profits when the time is right, and preserve or even increase your wealth.