You can invest in oil and gas in a number of different ways. How can you maximize returns and minimize risks? Through financial education. Learn the basics of oil and gas investing and how to take the next step should you decide to be an investor.
Becoming an oil and gas investor offers tremendous financial upsides. Oil production and exploration remain to be a vital industry in the United States, supplying 80 percent of American energy, providing about 12.3 million jobs, and supporting the maintenance of hospitals, schools, and public infrastructure across the country. Sophisticated investors enjoy a litany of tax incentives, and their investments can even be 60 to 100 percent tax-deductible. As with an investment in any kind of industry, oil and gas investment carries its share of risks. However, it can be a gratifying investment opportunity when done with diligence and care.
Petroleum as a commodity and an asset
Crude oil or petroleum is extracted from the earth and refined to make gas, gasoline, and other kinds of products. Petroleum is in high supply, not just in the U.S., but on a worldwide scale. The demand for oil is only expected to increase. In fact, The National Petroleum Council estimates that the global demand for oil will increase from 98 million barrels per day in 2021 to about 138 million barrels per day in the year 2030. Oil is a strategically and economically essential resource, based on the amount of energy we consume. You may not realize it, but we use petroleum products extensively. Examples are:
- Mops
- Bicycle tires
- Umbrellas
- Roofing
- Solvents
- Basketballs
- Toilet seats
- Perfumes
- Deodorant
- Hair coloring
- And so much more.
Whether it is propane for your grill or gasoline for your car, these products are all made from petroleum. Petroleum has no substitutes, unlike the majority of goods in the market. There is no alternative to a lot of products that are produced from petroleum.
Supply and demand
In spite of the surge in renewable energy sources and biofuel, a lot of the infrastructure in America is mostly dependent on oil. It is considered a commodity, which means that there is a high demand and limited supply. Oil is a non-renewable resource; hence, the supply of oil will reduce in time as the demand for petroleum-based products continues to increase. This means that the price of oil can only be expected to rise. When everyone else is disappointed about the high cost of petroleum, investors of oil and gas are thrilled because this means that their investment is up.
How to invest in oil and gas
Here are some of the ways you can invest in this commodity.
- Direct investment – this entails purchasing equity in upcoming and existing projects directly from a company. The investor buys an interest or a percentage of the assets of a drilling company which allows him to benefit from the profits of the business’ projects. As provisioned by the American government, those who chose to invest directly are eligible for excellent tax benefits.
- Indirect investment – this entails the purchase of equities such as oil futures or energy-sector ETFs, and are considered the fastest and easiest ways to become an oil and gas investor. Those who do not qualify for the minimum requirements laid out for direct investments typically go this route. You can invest as little or as much amount of money as you please.
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Want to learn more about oil & gas investing? Our expert team can provide you with more information or schedule a consultation to talk about diversifying your investment portfolio.
Next steps
How much is involved in oil and gas investing? The answer generally varies and would largely depend on the kind of investment you want to make. The investment can be anywhere from a $4 futures contract to an oil well drilling project that is worth millions of dollars. If indirect investment sounds more appealing to you, research more about stock trends, ETFs, and mutual funds.
If you wish to take a more hands-on approach and try direct investment, you may start by getting in touch with a reputable oil and gas investment company. When it comes to choosing oil and gas investments, it is crucial for you to be diligent in researching your options before making an investment decision. If you are interested in investing in oil and gas, get in touch. DW Energy takes pride in helping approved and qualified investors build a portfolio that gets results.
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Sources:
“U.S. Energy Facts Explained,” U.S. Energy Information Administration, https://www.eia.gov/energyexplained/us-energy-facts/
“Guide to Investing in Oil Markets,” Investopedia, https://www.investopedia.com/articles/economics/08/investing-in-oil-markets.asp
“Status of the world oil supply,” Britannica, https://www.britannica.com/science/petroleum/Status-of-the-world-oil-supply
“Oil and petroleum products explained,” U.S. Energy Information Administration, https://www.eia.gov/energyexplained/oil-and-petroleum-products/use-of-oil.php