The oil industry has been around for a long while, and it’s also the key source of energy that’s being used in the world. However, one of the downsides is that some of the old methods are harmful to the environment.
Since green energy will take a while to achieve the same level of efficiency, it still makes sense to invest in oil companies. Also, there are countries in the world where solar electricity will simply not work. That includes places like Sweden, Norway, and Finland. Click here to read more.
The number of sunny days is limited, which means they still need to run on the good old oil. In addition, most of the world is still driving petrol cars, which means that the demand is here to stay. However, that doesn’t mean that there aren’t any risks associated with these kinds of investments. The biggest downside here is the potential for an accident such as a spill. With time, the number of accidents has decreased, but that doesn’t mean that the probability has gone down to zero.
Volatility
If you’ve been paying attention to the market, you might have noticed that when the pandemic started, the price of stocks dropped. The same thing happened to OPEC companies, which reached a 20-year low. Gas falls in the same category because they’re priced based on supply and demand, which means that inflation can’t touch these kinds of assets.
However, an interesting thing happened in April of 2020. The price for a barrel reached a negative 37 dollars. That’s confusing when you first hear about it. How can a price of an asset be in the negative? Here’s the scoop. Producers were actually paying buyers to take the barrels because the production was high, and the demand was super low.
Everyone started to fear that there wouldn’t be enough storage to keep the barrels, which is why this phenomenon happened. Additionally, drilling companies and oilfield services were hurt by the low prices because of the extremely low demand at that time. Eventually, everything got back to normal in the summer of 2021.
Dividend Cuts
The thing that makes a specific investment extremely lucrative is the dividend percentage. Apart from the stock rising in value, you’re also getting a percentage back in real dollars. Issuing out dividends is the thing that brings in a lot of new investors every year, which leads to these companies making more money.
However, in cases like what happened during the pandemic, a company can decide not to give out the percentage or decrease it based on revenue reports. If the investors can’t be funded, then a lot of them will sell their positions, which can lead to a market crash or a shorting. This also happens when the prices of commodities are low.
One of the most popular examples in the niche is the company Seadrill. All the way back in 2014, they decided to eliminate their dividends completely. This led to loads of investors selling the stocks, which eventually led to the price falling more than 50 percent. In that scenario, everyone lost.
Should you buy the asset?
Apart from these risks of oil investing, everything else is a benefit. That’s because 90 percent of the world considers a barrel of oil as an asset. It doesn’t lose value over time, and it can serve a lot of purposes in the industry. That’s why a lot of people like to call it black gold.
If you’re planning to get into the sector, it would be wise to consider a long-term position. Eventually, the production is going to decrease due to solar and wind, but that doesn’t mean that the utility will be lost. Renewable technologies are unreliable because they depend on external factors.
Burning oil will always generate energy, but you can’t use solar on a rainy day. Furthermore, when there’s limited production and a lot of demand, the prices can skyrocket. Patience is a virtue, and all good things come to those who can wait. If you know how to enter and exit the market, this can be one of the best investments that you can make. Decide whether you want to go in solo or choose an ETF that will handle all of the difficult work for you.
Why should you care about investing?
A couple of decades ago, people could retire with only their savings in the bank. Now, that’s impossible to do. With inflation rates rising to over 7 percent, the money you save will be worth dimes instead of dollars. Leaving money inside your bank account is bad due to two reasons. First of all, it doesn’t have the potential to make more money.
Secondly, inflation will nibble on it every day. When you invest, it’s like employing your own finances to do more work for you. When you’re starting to work, your only source of money will be your income. The greater your income, the more money you’re going to have. However, as months go by, you’ll begin to notice that all the people who’re doing better than you financially are putting some of their assets to work.
Depending on your age, the goals you’re striving towards might differ. If you’re younger, you can handle a lot of risk and volatility. That’s going to train your nerves for the future. If you’re middle aged, you might be focused toward building a family and raising kids. Then, you need to take some stress away from your head and focus on other things.
Finally, people that are close to retirement are more self-directed since they’ve been in the market for a while, and they know exactly what needs to be done. Oil is one of the best assets to start with, and it’s never too late to start putting money into it. Life moves quickly, and markets move even faster. The more experience and assets you have, the better it’s going to be for you in the future.
