What You Should Understand About The Oil Market To Invest!
February 5, 2019
Whether you are selling oil rights or simply looking to invest in oil in other ways, it’s important that you understand how the oil market works so you can invest wisely.
Due to constantly fluctuating supply and demand, the market can be volatile at times even for those with oil rights for sale.
These tips can help you interpret the market, from dealing with oil rights to knowing when to buy interests in oil for greatest profits.
Supply and Demand Affect Everything
As with any other commodity, the oil and gas industry, oil prices, and how much you might get for any oil rights you are selling depend on global supply and demand.
Generally speaking, when demand is high and supply does not match it, prices inflate; when demand is low because there is too much supply, prices deflate.
When demand and supply are close to being matched, prices stay high enough that E&P companies can still make enough of a profit to continue investing in E&P and consumers continue to buy at reasonable prices.
Oil Prices - Based on Many Factors
In addition to supply and demand, there are many other factors that can affect the price of oil as well as the cost of producing it.
The global location where the oil was produced can affect price as products from certain regions are more preferable than that from others.
The methods required to explore and produce oil can also affect price, especially if it is necessary to drill in more challenging areas or requires more work or equipment to do so.
OPEC Can Significantly Affect Oil Prices
OPEC is an organization of many oil-producing nations that collaborate to monitor and stabilize oil prices globally.
While its main purpose is to keep supply and demand stable, the OPEC organization controls a significant portion of the oil market itself.
This gives OPEC the power to change its production amounts to affect the market in ways that can discourage smaller E&P companies from drilling new wells or investing in legacy wells, all of which has a trickle-down effect to private investors and even those selling oil rights.
Many Ways to Invest in Oil
Oil and gas production is a multi-step process that includes many different companies specializing in different parts of the process:
===>> Upstream Production - The E&P part of the production process that involves the actual land exploration, buying land and oil rights for sale, and then drilling to bring product to the surface.
===>> Midstream Production - The supply transport part of the production process that involves building and maintaining pipelines, transportation with tankers, and other means of getting the crude product from the well to the downstream sector.
=== >> Downstream Production - The refinement and sales part of the process that accepts the crude product from midstream companies, cleans and prepares it, then makes it available to buyers.
Therefore, anyone interested in investing in oil can choose to invest directly in any of the companies at the different stages in the production process individually or in the industry as a whole through a “basket investment.”
Basket investments are essentially oil-related stocks or mutual funds that encompass multiple companies involved throughout the entire process.
The Oil Industry and Market Is Complex
Although it’s possible for anyone to invest in the oil industry, even from the basic act of selling oil rights, the workings of the market are complex.
Knowing where to invest requires a good amount of research so you understand the process and prices and can determine which companies look most promising for investment.
Partnering with an experienced agency that deals with the buying and selling of oil rights who can advise on the condition of the oil market is highly recommended!
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