Read in this article
- The Russian invasion of Ukraine disrupted trade flows and fears about the recovery of the world economy
- Each futures contract represents 1,000 barrels of oil
- There are many different types of crude oil traded in the commodity markets
- The most important markets for investors are Brent Ru and West Texas Intermediate Rule
- Crude oil options are the most traded energy derivative on the New York Mercantile Exchange
- Saudi Aramco is one of the largest companies in the world based on revenue
- ExxonMobil continues to invest in some of the world’s most attractive oil and gas projects
- Following up on the latest oil market analysis will help you decide how to invest in oil for your portfolio
- The world is increasingly vulnerable to disruptions in energy production due to declining supplies
How do you invest in oil? .. One of the questions that has emerged recently, with the rise in crude oil prices and their highest level in 14 years.
Russia’s invasion of Ukraine cast a heavy shadow on oil markets, marked by extreme volatility in 2022, leading to a decline in expectations for the recovery of the world economy and global oil and gas investment after the Corona epidemic, according to a report seen by the specialized “energy” platform.
The sharp fluctuations in oil prices have increased the interest of individual investors in trading in the market, and the search for convincing answers to the question: How to invest in oil?
Oil has recently returned to the focus of investors’ attention, as one of the main sources of energy security, after being attacked in the past year, accusations that it is one of the causes of the climate change crisis, and demands for new investments.
Invest in oil with little money
A report entitled “How to invest in oil with little money?” by Nicole Welling and Alexandra Pankratieva, authors on financial markets and energy prices at financial and investment advisory firm Capital.com, sheds light on how to invest in oil with a small portfolio.
The report reviewed the three main instruments that answer the question: How to invest in oil ?, which can be used to trade in the crude market and choose the best option that suits the investor’s goals.
The report, published by the Capital Company platform on June 27, indicated that the strong fluctuations in oil prices had led to an increase in the interest of individual investors in trading in the market, in light of the current energy crisis.
Ways to invest in oil
There are 3 main types of financial assets in which you can find an answer: How to invest in oil These are:
- Forward contracts and option contracts.
- Contracts for Difference (CDF).
- Oil equities and exchange traded funds (ETFs).
Forward contracts and option contracts
Crude oil futures contracts are defined as contracts where the buyer agrees to pay a specific price to the seller; To deliver a certain amount of oil on a specific date.
Some futures contracts require the buyer to physically deliver the underlying asset by the specified delivery date, others are settled in cash, and each futures contract represents 1,000 barrels of oil.
In contrast, crude oil option contracts give buyers the right to buy or sell oil at a specific price based on the futures market, but do not require physical delivery of the underlying asset, as option buyers pay for the option, rather than the underlying futures contracts. contract.
This means that buyers have to pay some capital in advance; To buy or sell short, which means to own or borrow an amount of an asset or a derivative security.
How to invest in oil b futures and options contracts?
There are many different types of crude oil traded in the commodity markets, but the most important markets for investors are: Brent crude, which is the global benchmark, and West Texas Intermediate, which is the benchmark for North America, according to data has been seen. through the specialized “energy” platform.
Crude oil options are the most traded energy derivatives on the New York Mercantile Exchange (NYMEX).
Both types of oil are traded on the NYMEX and ICE, and WTI options are traded primarily with NYMEX and ICE crude options.
Forward contracts expire on the third business day before the 25th day of the month preceding the delivery month.
When the 25th business day is not a business day, contracts expire on the third business day before the business day preceding the 25th business day.
Contracts for difference
For investors interested in looking for: How to invest in oil with little money ?, CFDs offer an alternative way to speculate on the price of crude oil, according to what has been seen by the specialized “energy” platform.
CFDs are contracts between a buyer and a broker to exchange the difference in the value of a futures contract between the price at which the contract was opened and when it was closed.
CFDs, like option contracts, allow traders to buy or sell so that they can open a long position if they expect the price of oil to rise, or sell if they expect it to fall.
Furthermore, CFDs allow traders to open partial positions with less than 1,000 barrels of oil, allowing them to invest small amounts of money.
For example, a CFD order on U.S. crude oil could be 25 barrels.
CFDs allow traders to use leveraged financing to double the size of their positions, as leveraged financing requires a fraction of the trading value to be invested.
This means that investors can increase their exposure to the market, which could potentially maximize the profit of the initial investment, and trading on margin can also increase losses, making it risky, Capital platform published on June 27th.
For example, a margin of 10% means that the investor has to deposit only 10% of the value of the position he wants to open, and the CFD provider covers the rest.
When an investor wants to trade $ 1,000 CFDs on crude oil, and his broker requires a 10% margin, he only needs $ 100 of initial capital to open the trade.
It is noteworthy that CFD providers, such as the (Capital) platform, offer commission-free transactions, which reduce the cost of investing in oil as investors save money on storage costs; Because they do not need real ownership of the oil.
The best companies to invest in
The report, seen by the specialized energy platform, reviewed the 5 largest oil and gas companies by market capitalization, as of June 27, which novice investors can consider, and offers an ideal option for those looking for: How to get into oil invest?
Aramco Saudi Arabia
Saudi Aramco, the oil and gas company, is one of the world’s largest companies based on revenue, and it briefly overtook the American technology company Apple in May 2022 as the world’s most valuable company.
Saudi Aramco’s share has risen 16.5% so far this year, with a market capitalization of $ 2.18 trillion at the time of writing (June 27).
Analysts expect Saudi Aramco’s revenue and profits to decline over the next few years from the peak recorded in 2022, according to data from the Business Insider platform.
The company’s revenue soared as crude oil prices rose to their highest level since their 2008 peak.
Exxon Mobil Corporation
US ExxonMobil has so far seen its share price rise 36.8% over the year, reaching a high of $ 105.57 per share in early June.
It is noteworthy that many large international companies have cut back significantly on investments in oil and gas, in an effort to embrace the energy transition.
ExxonMobil believed that the world would need fossil fuels for a longer period of time, and demand for oil and gas would increase – not contract – in the medium term.
As a result, ExxonMobil has continued to invest in some of the world’s most attractive oil and gas projects, credit analysts at Credit Suisse reported on June 21.
Shares of US Chevron Inc rose 21.4% year-on-year, with the share price peaking at $ 182.40 in early June.
Analysts expect the company to increase profits due to higher oil prices, but analysts at Goldman Sachs recently noted that Chevron has a “less convincing” waiting list than ExxonMobil.
Goldman Sachs has a target price of $ 181 per share as of June 7th.
Royal Dutch Shell, which has decided to move its headquarters from the Netherlands to the United Kingdom, saw its share price rise year-on-year to 20 pounds ($ 24) in late 2021. 23) seen.
The average target price for analysts was £ 27.17, according to data compiled by MarketBit on 27 June.
On June 21, an analyst at Royal Bank of Canada, John Musk, set a target price of £ 30 per share.
Credit Suisse analyst Amy Wong set a target price of £ 30 on 9 June.
PetroChina (PTR), one of China’s three oil giants, is the publicly listed branch of the state-owned China National Petroleum Corporation.
PetroChina’s share price has risen 8.1% year-on-year so far as the company announced its highest annual profit since 2014 in 2021, with oil prices rising and demand recovering from its lowest levels, Capital’s platform published on 27 June.
On the other hand, the renewed restriction in China led to; Due to the renewed outbreak of the Covid-19 epidemic this year, to weaken expectations about demand and curb the rise.
Those interested in knowing how to invest in oil with a little money should look for stocks of oil companies and ETFs to finance stocks with prices that match their investment budget.
Analysts’ expectations for the oil market
“Commodity analysts at Goldman Sachs in the United States raised their forecast for Brent crude on June 7 for the second half of 2022, from $ 125 to $ 135 a barrel, and in 2023, from $ 115 to $ 125 a barrel,” as the shortfall remains structural oil is undissolved.
Equity analysts at investment firm Goldman Sachs responded with an updated forecast for their oil stocks.
Analysts expected large U.S. corporations to benefit from the commodity price environment, with capital gains tilting upward, and net debt continuing to decline.
Analysts at Canada-based investment firm TD Securities have expressed optimism about the short-term outlook for oil prices, noting that traders should note that recessions have no record of undermining demand.
They report little progress in solving structural supply challenges, and that the world is vulnerable to disruptions in energy production; Due to significantly reduced inventory and dwindling savings capacity.
Analysts see that oil prices are on a fast track, and predict that the state of the world’s energy supply will be so limited that oil prices may remain high even in a recession.
They indicated that once the optimum method of trading US crude oil or Brent crude oil has been chosen that suits the investor’s objectives, a comprehensive analysis of the oil market must be ensured; To make informed trading decisions.
Some experts believe that analysts’ opinions and target prices may be wrong, and they do not recommend trading more than the trader can afford to lose.
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