How To Invest In Oil and Gas - Finance Naija
January 16, 2022
How To Invest in Oil and Gas

How To Invest In Oil and Gas


How To Invest in Oil and Gas

How to invest in oil and gas. The oil and gas sector is among the largest industries in the whole world when it comes to dollar value.

It generates a sum of $3.3 trillion monthly in revenue. It is very crucial in developing the economic framework of a country.

Russia, Canada, United States, Saudi Arabia are the largest producers of oil and gas.

Note: in the oil and gas industry we have the upstream, downstream, and middlestream.

1. Upstream:

The upstream mainly consist of companies interested in the production of oil and gas. These companies look for countries that have the raw materials and then extract the material. These companies are popularly called E&P.

It carries high risks, high capital for investments, extended time, and high investments in technology.

2. Downstream:

The downstream is mainly responsible for removing impurities and converting oil and gas for the general use of the public. Examples of these products ate heating oil, gasoline e.t.c.

3. Middle stream:

The middle stream’s focus is on transportation. They move the raw materials to the refineries from the extracted ground. They are characterized by pipelines, trucking, shipping e.t.c.

How to invest in oil and gas.

You can invest as a commodity that is a direct investment, or through energy-related equities, or options contracts.

You can either invest through a broker or an online brokerage account.

Investors look for economic indicators to aid them in predicting and understanding future movements in the petroleum industry.

Oil and gas companies are sensitive to inventory levels, global demands, and interest rate policies amongst others.

I. Investing in oil directly:

You can do this by purchasing oil opinions or futures. The oil futures are very volatile and have got high risks.

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Additionally, it involves you investing with huge capital.

Furthermore, you can purchase exchange-traded funds, this is done similarly to purchasing stocks. For instance, if you purchase a share of the U.S oil fund(USO). You get an exposure to one barrel of oil

ii. Investing in oil indirectly:

This can be achieved by purchasing Energy- sector exchange-traded funds.

In addition, they can also purchase energy sector mutual funds. They come at a lower risk as they invest solely in stock oil and oil service companies.

Note: there are diverse ways you can invest in the oil and gas sectors, you can purchase oil in barrels.

You can also invest in oils by owning various oil companies through indirect exposure.

iii. Buying Mineral Rights:

Mineral rights enable you to have ownership of the natural resources found on that land. You can choose to lease or sell these mineral rights as building your resources to extract it would be too expensive.

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Leasing the mineral right is a great way to produce extra cash flow. A landowner can receive royalties based on the amount of oil or gas extracted.

Albeit, mineral rights are expensive and have an ever-changing commodity price.

Advantages of investing oils and had.

1. Diversification:

They provide useful diversification in an investor’s portfolio. It can serve as an edge against falling prices in other companies.

2. High-profit potential
3. Income

Finally, anything that has an advantage also has disadvantages too, some of the disadvantages include, liquidity, volatility amongst others.