Who Makes Money on Oil

Who Makes Money As Oil Prices Rise

While the majority of the world will lament the increase in oil pricing, there are a few individuals that welcome the increase in oil pricing.  This can include any type of oil from crude oil pricing, fuel oil pricing, heating oil pricing, and more.  Yes, the owners of the oil companies always welcome the increase in oil pricing, as this mean that their companies are making money, but you don’t need to be a CEO to benefit from an increase in oil pricing.

Using The Stock Market

The average person can benefit from oil prices and crude oil pricing through the stock market.  As with any type of investment, you should collect as much information as you can.  You should try to find information on the investment’s prospectus, historical returns, the terms of the investment, and any other future potential.  There will always be a little bit of risk involved with any investment, but if you are well informed, you can minimize that risk.

You can purchase oil futures, as this involves crude oil pricing.  Crude oil is traded on the commodities market, but it is a very risky type of investment.  Basically, you are buying some oil that you can sell on a specific date in the future.  You will make a profit if the oil price is higher in the future, but you can also lose money if the price drops.

You can invest in a commodity exchange-traded fund, which is bought and sold much like stocks.  This is basically like an index that tracks the price of crude oil in specific funds or markets.  Your success in this type of fund depends on the change in the commodities market.

You can also put your money in an oil royalty trust. You will then receive dividends, which can be quite substantial, up to 30% each year.  The amount of dividends you make each year will depend on oil production.  Some popular royalty trusts include Permian Basin Royalty Trust, BP Prudhoe Bay Royalty Trust, the TEL Offshore Trust, Penn West, and the Harvest Energy Trust. Unlike stock, the dividends are usually paid out monthly rather than quarterly.

You can purchase stock in the companies that support the oil company, as most of the large oil companies in the world have very expensive stock. Buying stock in supporting companies may be a bit riskier then investing directly in oil, but you have the opportunity to make a nice profit.  There are many companies that do research for oil companies, or provide big oil with equipment and other technology.  Without these companies, the oil companies would not be able to function.

Additionally, you can invest in oil transport companies, such as Constellation energy that owns a pipeline, or Nordic American Tankers that transport oil in tankers.  These companies’ prices will follow the price of crude oil and can pay out large dividends.
You can also benefit from investing in alternative energy companies.  This can be profitable because people will start using alternative energy when the price of oil increases, as it is environmentally friendly and will be less expensive in the long run.  There are many companies that research, design, and produce alternative energy.  It is unknown what the next big fuel will be, but solar power and wind power are starting to make their mark in the energy industry.

You can convert your home to using alternative energy, as homes that rely strictly on heating oil will see large increases in their bill when the heating oil pricing increases.  Setting up alternative energy for the home is a significant investment.  However, once the equipment is in, you will soon earn back what you spent, as most systems produce more then enough energy for the home and pump it back into the electrical grid.

If you have enough cash, you can invest directly in Big Oil.  Big Oil incorporates the seven largest companies in the world.  The stock will be expensive, but the companies are large enough that their stock will not be affected much by a drop in crude oil pricing.  There are other smaller oil companies as well, but they offer a bit more risk then Big Oil.  You can also invest in a mutual fund that contains oil company stocks, as most tend to have at least one oil stock investment.

Current Activity In The Crude Oil Market

Crude oil pricing was at an all time high, and then it dropped significantly with the downturn of the economy, to about $32 per barrel.  The crude oil market will be volatile for quite some time, as small changes in production will have great effect on crude oil pricing.  Oil is still a safe investment, as it will take years for alternative energy to become as effective as oil, and almost all buildings and electrical facilities will need to have their systems converted.  Crude oil production has not greatly increased, but the demand is still as strong as ever.

Since the market is unlikely to change for many years, oil investment is still a safe and smart investment.  If you plan to hold onto your oil stocks for the long haul, then you need to be aware of what is going on in the market to catch when oil prices will begin to drop.  As with any investment, you want to buy low and sell high, and with the changeability of the market, you can achieve this by either closely watching the changes of the market or holding onto your stock for a long time.

Holding onto oil stock for a long time is smart, as oil prices will rise; it is just a matter of waiting it out.  Oil is limited, and there is only so much in the earth, currently about 50% has been used.  Oil support companies will show an increase in stock price, as it becomes more expensive to get the oil out of the ground. The demand for oil is still as high as ever with no sign of slowing, and the areas that produce much of the world’s oil are politically unstable.  As these areas remain unstable, the likelihood of rising prices increases.