Despite recent efforts to boost the usage of renewable energy on the planet, oil continues to power the global economy. Each day, the globe utilizes millions of barrels of crude oil and this is set to increase in the coming years. This is because cars require gasoline to run, and power plants require natural gas, oil, and other resources to produce the electricity required to keep the lights on in different houses.
Individuals are constantly looking for ways to invest their funds and with oil being an essential commodity, many people are venturing into the oil industry. There are several ways to invest in this sector, each with its own set of advantages and disadvantages. If you desire to enjoy the benefits attached to an oil and gas investment opportunity, we recommend that you make proper research before investing your funds.
This article will also discuss some investment opportunities in the oil and gas sector to help you make the right choice. Please continue reading as we explain more.
Investment Opportunities in the Natural Gas Industry
The following are some opportunities to explore in the industry:
If you do not want to buy barrels of oil and store them in your space, then futures provide a direct method to invest in this sector. A futures contract is an agreement between a buyer and a seller to conduct a transaction at a predetermined price and on a predetermined date in the future. Futures, unfortunately, can be complicated and risky.
Traders can now bet on commodity price changes by buying and selling futures on different trading platforms. If you acquire an oil futures contract for $50 and the price per barrel jumps to $60, you can sell it to someone else and make a profit.
Direct Participation Programs
A direct participation program is another way to acquire direct exposure to oil. DPPs combine capital from investors to form a limited partnership, which is then used to fund oil-related operations such as well drilling and extraction. This way, you effectively become a part-owner of an oil corporation.
DPPs are primarily passive investments with long time horizons, ranging from five to ten years or more. The cash flows of the DPP are distributed to investors during the course of the partnership's tenure. You may also qualify for tax benefits based on ownership.
DPPs are involved in the natural resources industry in a variety of ways, so it's important to know what yours will be, whether it's drilling projects, storage, or processing. Make sure to check out the partnership's business plan and management staff as well. You'll lose your funds if the partnership doesn't produce a profit so be careful with the choice you make. If you need more information about DPPs, you can check here: https://en.wikipedia.org/wiki/Direct_participation_program
Purchasing Mineral Rights
Mineral rights refer to the ownership of the resources beneath a portion of land, like oil, natural gas, and precious metals. Another direct approach to investing in oil and natural gas is to purchase mineral rights to land that has these resources beneath it.
Although you might theoretically set up your own enterprise to extract the resources from the land you buy, doing so would be extremely difficult and costly. Many people who own rights to resource-rich property sell or lease them to firms that specialize in mining those resources.
One of the most straightforward ways to include natural resources in your portfolio is with this strategy. You can start investing with as little as a single share, or even less if your brokerage allows you to acquire partial shares.
Shares are a highly liquid investment with lower volatility than commodity prices, and this reduces your risk. Several natural gas firms pay dividends, allowing you to generate income from your investment. It is important that you know that stock investments can be risky. You can easily lose money on your investment if the firm you choose performs poorly. The knowledge of this should guide you in making the right financial decision.
These are some relevant tips to guide you if you are looking to invest in this sector. For recommendations on other investment opportunities, you can read this article.
Investing in oil and gas is certainly a good investment that you will derive maximum benefits from. However, it is important that you consider the pros and cons of the investment opportunity that you are considering. This way, you are sure to secure your funds and make a profit.