How to Determine What Stocks to Buy When Crude Oil Prices Rise
Fossil fuels, in the form of oil and gas, are the energy that drives modern civilization. Whether it is the refined oil in the form of gasoline you put in your car or the electricity generated from an oil-power plant, everyone enjoys the benefits of these popular natural resources. Investors in these commodities have enjoyed large returns by investing in stocks, funds and ETFs that are concentrated in oil and gas. This article will help you explore these and other options for profiting from the rise of crude oil prices.
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Instructions
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Think about oil. Why do we use it? For what? Energy, right? It is cheap, abundant energy that we can use to power anything we want that has a gasoline or diesel motor hooked up to it. We use oil to power the factories that make the products we consume. We use oil refined into fuels to power our transportation vehicles. We also use oil to synthesize things like chemical fertilizers and plastics. Crude oil is very much the life-blood of the industrial world.
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Invest in energy for the obvious connection to crude oil. There are a number of ways to do this but a mutual fund of an ETF (Exchange Traded Fund are the easiest. For example, BlackRock All-Cap Global Resources Inv A (BACAX) is a mutual fund that invests almost exclusively in global energy and resource companies. An ETF example is the United States Oil Fund LP (USO) - a fund designed to track the price of crude oil. Either of these are sure to increase in price along with crude oil.
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Invest in alternative energy. We need a source of power to replace crude oil if it gets to scarce/expensive. Alternative energies like nuclear, wind, solar, etc will have to scaled up to make up the shortfall. Mutual funds and ETFs are another good way to go with these types of investments. For an example, look up PowerShares WilderHill Clean Energy ETF (PBW).
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Invest in gold or other precious metals. Gold historically tracks crude oil. Why? Because oil in the form of energy is such a vital part of industry that an increase in the price of oil means an increase in just about everything else. That spells inflation, the devaluing of fiat money like the U.S. dollar. Gold is known as an inflation hedge because it maintains value even in times of high inflation. Gold can be bought in coins or in ETFs like the SPDR Gold Trust (GLD).
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Invest in crude oil futures, shorts on airline stocks, currencies of countries with oil wealth and other exotic financial plays. These ideas should all perform well in a market of increased crude oil prices but they are complicated and risky investments. Consult with a financial expert before jumping into anything that may be over your head.
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Tips & Warnings
For solid, low risk investments that will gain with the rise of crude oil, focus on mutual funds and ETFs like those mentioned to help spread the risk of investing in energy, a volatile sector.
