According to the International Energy Agency, world demand will be growing for all energy sources. In 2035, the share of fossil fuels will still account for 75% of world energy consumption. Oil demand is expected to increase by 15% driven by the emerging BRIC countries. Let’s face it, the era for cheap oil is behind us, oil has become more expensive to find and to extract from the ground which requires sustained high oil prices to ensure future supply.
How to invest in oil
There’s no way around the volatility in oil prices as it is a global commodity. Demand and supply will trigger price movements impacted by geo-political events or simply by the state of the world economy. But one thing is for sure, Oil is not going anywhere anytime soon unless a new cheap and abundant energy source suddenly appears and so far it has not happened yet. The transportation sector is responsible for 70% of demand for oil and it looks like the electric car will have a long way to go before it becomes the standard in India, China, Russia and Brazil which are the main drivers in oil demand.
North America is a great place for investing in oil as political risk is low and new reserves that have been previously deemed uneconomic are now producing thanks to the shale oil revolution. Why invest in faraway lands with companies operating in hostile environments and regimes when an oil investor can put his money right in his backyard using his own currency. This is how you start by eliminating the currency risk and the political risk.
How to invest in oil ETF
When you expose your portfolio to a sector make sure it has a balanced weighting in order to limit the risk associated with this sector. If you are looking to buy oil as commodity, unfortunately, you are probably not equipped to store hundreds or thousands of barrels of oil on your property which brings us to buying an Oil ETF. ETFs have made it easy to track futures oil contracts without the hassle of trading futures. This Oil ETF list will provide you with exposure to the commodity and the opportunity to profit from oil price volatility. For short term traders, leveraged ETFs provide the opportunity to capitalize on these price movements through a Double Oil ETF. These leveraged ETFs magnify your exposure to the price volatility and they are only suitable for short term trades and not long term buy and hold.
How to invest in Oil Stocks ETF
If you wish to expose your portfolio to oil through stocks then there are a host of oil exploration and production companies to choose from. Choosing Canadian Oil Stocks and US Oil Stocks operating in key oil or liquids rich resources plays such as the Bakken, the Cardium formation or the Eagle Ford is a must. It is very important to focus on companies with production developing proven reserves and not in exploration mode in order to minimize risk. An Oil Stock ETF will minimize your risks further as company specific risks are wiped out. For the short term trader who knows the risks of leveraged investing choosing a Double Oil Stock ETF or even a 3x Oil Stock ETF will do the trick.
How to invest in Oil Services ETF
The Oil services sector is great for providing you with indirect exposure to the commodity minus a lot of risk associated with development and exploration drilling. Drilling companies and field services companies make sure the wells get drilled, maintained and are responsible for every little piece of equipment required by a producing well. An Oil Services ETF will shield you from short term volatility in oil and gas prices as in many cases companies operate under long term contracts. However, they will be impacted if a sharp and prolonged drop in oil prices happens as companies will cut back on their drilling budgets and field work.
For those who wish to geographically diversify their energy investments, there’s always a Global Energy ETF you can pick. Choosing a Renewable Energy ETF is also another diversification move because even if oil won’t be disappearing anytime soon, renewable energy will be accounting for a higher share of global energy consumption every year. Make sure you understand the ETF Risks associated with your investment before you take any decisions.