Should I invest in oil?

[LandOfAThousandJumpers]

Can anyone with knowledge of investing advise whether it’s a good idea to invest in oil now prices have dropped and if so what type of deals to look for?

where will you buy it from and where will you store it?

You really need to ask this on a specialised investment forum... AIBU isn't really the place.

@NotSuchASmugMarriedNow1

@Lockheart

If no-one responds, no-one responds, nothing lost.

I would hold off, think it’s going to go lower as less consumption due to COVID.

As a wise man once said, The Stone Age didn't end because they ran out of stones.

I wouldn't invest in oil, no.

And I would go blue chip, not a direct linked fund.

Not an expert by any stretch of the imagination but oil is so volatile. I think utilities is a "safer" option. Precious metals like platinum is maybe another decent one but it could take years for a decent return.

I must be totally thick because I have no idea what type of oil you're talking about!

@MuchasSmoochas

Yeah, apparently there’s a struggle at the moment to store a glut of crude oil - obviously demand has tumbled. Price has dropped to below $1 a barrel I believe. Just not sure how it works - seems lots of the deals are against future prices, etc, etc.

Am reading up but just wondering if there’s anyone who might have a bit more of a solid grasp on what you need to be aware of.

Cheers for the replies! Yeah I just saw the price had dropped x15 and thought it might be worth just going for a small amount to see what happens. Nothing I couldn’t afford to lose. Any other tips on good investments welcome too!!!

@NotSuchASmugMarriedNow1 has a good point.

Buying commodities is not the same as buying shares. It’s an investment in a tangible product. You would be actually purchasing barrels of oil.

Are you looking at buying futures? Very risky right now- you might end up receiving a big delivery of barrels of oil. Plus, most traders would have a minimum buy-in which could be several thousands of pounds.

@MuchasSmoochas

I don’t actual know the difference between a blue chip and direct linked fund 🙈 🤷‍♀️

Aha, thanks @VodselForDinner this is exactly what I was curious about - are you investing in the company, betting against future prices, or what.

That’s useful info and makes things a lot clearer.

I love MN but don’t think I’d trust them with financial advice (no offence all )

So how does this buying oil work. I thought it eas selling for less than zero

Ok so there are oil related funds that you can invest it. Some will be active, which means a fund manager is picking which companies to invest in. Active funds have a higher annual fee. Then there are passive oil funds which track the price of oil. Blue chip means instead of a fund you buy shares in the actual company say in an ISA or SIPP. A blue chip oil company would be someone like BP who are down in price currently. However they always say don’t time the market, it’s time in the market that counts! However if you’re in cash at the minute there will be great bargains to buy.

The market is to volatile for anyone but very experienced traders, or those prepared to loose their money. if you fancy a punt, 1/10th of an ounce gold sterling coin when the prices drop, right now the premium on them is very high.

Ahahaha I see what you mean @MuchasSmoochas - thank you for explaining!

The easiest way to do it would be to invest in futures.

Very simply, you’re betting against the future

Very basic example ahead-

So you would be committing now (at say $1 barrel just to have a nice round number) and promising the trader $1,000 in the future because you’re counting on prices being higher than $1 when that barrel of oil is produced and ready for sale.

Let’s say your bet pays off and, in the future, oil is up to $5/barrel, you’ve made a decent profit. You’ve bought 1,000 futures (barrels) so you owe the trader $1,000 and then you get your $5,000.

However, if prices drop and that oil is only selling at $0.10, you still owe the trader $1,000 but your investment is only worth $100, so you’ve lost money (and may have to find out how to store all of that oil that hasn’t sold because someone invested at $0.08 and sold at $0.09 therefore your oil is overpriced and doesn’t sell but you’ve committed to buying it).

Oil is a really poor investment currently because there’s zero demand, and demand drives value. Certainly, demand (and therefore value) will rise, but nobody knows when that will be.

Also, oil storage is full so it’ll take a while to get to the stage where supply and demand return to normal levels.

Also bear in mind that large producers eg Saudi Arabia will control how much oil they pump to influence the price. The price of oil has a political element.

Someone I came into contact through work (I’m not in investments in any way shape or form but this guy is) suggested that the most consistent sector to invest your money into was forestry. It’s not as high performing (risky) as oil and gas but has consistently increased over the last 40 years. With the rise of carbon offsetting and climate emergency more people will be looking to invest in forestry and should still perform consistently over the next few decades.

I would not invest in oil. From what I understand, the drop in oil shares isn’t a direct result of covid-19 but started as a price war, then has plummeted even further as a result of covid-19. Therefore there are two factors which will need to recover before you see return on your investment. The oil and gas market is pretty volatile and always has been.

I made 10k last month doing micro trading but it's not for the faint hearted! It's also not buying a tangible product like oil! Commodities are not something I'll be getting into but I'll admit to mulling it over!

I stick with day trading which works well for me at the moment

Shouldn’t you be investing in something when i’s selling well?

If you want to invest in oil in hopes of a rebound in prices buy shares in large oil companies - Exxon, Shell, BP, etc. Their share prices largely go up and down with the price of oil since so much of their assets are oil deposits yet to be pumped out.