How to Invest in Gas and Oil


The global economy is heavily dependent on oil, and as much as some would like it, it’s not going to change any time soon. Petroleum products are an efficient way to generate kilowatt-hours and BTUs, and they have other industrial uses as well. While gasoline and crude oil prices are somewhat high compared to historical records, when inflation is considered, they are near a ten-year low. Readers can look here for several ways to invest in gas and oil.

ETFs and Mutual Funds

Investors can buy shares in a variety of gas- and oil-focused ETFs and mutual funds. These methods help investors gain exposure to these valuable commodities without the risks associated with spot pricing, and without risking too much money with any one company’s prospects.

ADRs and Large-Cap Stocks

These methods give investors exposure to the oil and gas market through publicly-traded companies. Companies such as Exxon-Mobil, British Petroleum, Marathon Oil, Gazprom and others engage in oil exploration, and investors can gain exposure by buying shares and ADRs (American depositary receipts) through a stockbroker.

Futures

Investors can buy derivatives like gasoline and oil futures contracts, but this investment vehicle can be somewhat risky. Futures contracts can—and often do—expire with no value.

Limited Partnerships and Small-Cap Stocks

If an investor wishes to have direct equity in a smaller project, they can make a play further down the corporate food chain by purchasing small-cap stocks or buying into a limited partnership in an oil and gas company. This field of investing is highly specialized, and if the company is not publicly-traded, the investor must hire a broker to gain access.

Exploration

Exploratory companies lease or buy land upon which they drill for oil and gas. If petroleum is found, an investment can pay off tenfold or more; if not, the investor may lose everything they put in. This type of investment is best for those with a high tolerance for risk, as the exploratory business is highly speculative.

The gas and oil industry is volatile, and when an investor becomes involved, they should do so in consideration of their risk tolerance and investment capabilities. Those who can’t afford to lose everything on a particular venture should stick to conventional plays such as oil and gas mutual funds or shares in large companies.