Oil speculators are people who make money from betting on the rising and falling of oil prices. Oil speculators buy financial instruments that are called derivatives that capture this bet, which indicates the speculated price of oil after a certain amount of time. However, the speculator does not own any oil. This is a risky and expensive venture, but a small business with plenty of extra cash can find a broker and get into the game.
The oil price plays an important role in the global economy, but profiting from it is not always as easy as it appears. When oil prices are rising or falling, there are a lot of investment opportunities that present themselves. Read on to see what strategies you could use.
How to Make Money from Rising or Falling Oil Prices
People are beginning to focus on oil prices these days. This can be linked to the falling production in Venezuela, and US President Donald Trump cancelling the Iran—US deal. All these factors have resulted in higher crude oil prices.
With production tight and the Organization of the Petroleum Exporting Countries (OPEC) unlikely to voluntarily increase supply, it is possible that oil prices could make further gains from here. So as an investor, how can you take advantage of this?
- Invest in oil companies to capitalize on rising prices: While futures curves are attractive at present, they can easily change shape. However, all is not lost as the share prices of oil companies are predictably very highly correlated to the oil price.
- Invest in oil exchange traded products: a short term strategy can be to invest in oil exchange traded products (ETPs). These type of funds have seen net inflows ahead of the meeting, with opinion spit over whether the group of 12 major oil producers will agree to cut production to send prices higher, or do nothing and allow the current slide to continue. Based on report about ETF Securities, investment into oil ETPs has been split evenly between long and short positions ahead of the meeting, indicating a high level of speculation on the outcome.
- Buy airline stocks: due to the number of bankruptcies involved in airline stock, it has become a very unpopular choice for investment, especially in the United States. But in times when the price of oil reduces, it advisable to buy into the sector.