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What are the Different Types of Oil Investments?

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  • Written By: Jim B.
  • Edited By: Melissa Wiley
  • Last Modified Date: 17 January 2020
  • Copyright Protected:
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Oil investments vary greatly in terms of the types of oil products and companies involved and the types of investments available to the individual. Investors must decide what type of oil product or company in which they wish to be involved. Once that is decided, they must decide whether they wish to simply buy stock in oil companies or directly invest via private equity or venture capital. Other oil investments come in the form of futures contracts, in which investors speculate on the movement of oil prices.

The impact of the oil industry on the world is far-reaching, not just in terms of the commodity's practical uses for energy but in terms of the way that countries with vast oil reserves often wield wealth and political power because of it. Oil investments can concentrate on the many types of oil, from the crude oil that is used to make all types of fuel products to the specific products themselves. There are also many different types of drilling operations and refineries that are available to investors.

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If an investor has decided on the sector of the oil market he wishes to pursue, he then must decide which type of investment he wishes to make. For stock market investors, oil investments often come in the form of oil company stocks being bought and sold. Mutual funds, which take investments from multiple investors and spread the capital within among many different securities, are practical opportunities for those who wish to diversify their oil portfolios. The main benefit of a mutual fund is that it usually can't be brought down by one or even a few under-performing securities.

Investors with significant wealth may wish to bypass the public sector and invest in private oil companies directly with an eye toward gaining equity and maybe even decision-making clout in those companies. Oil investments of this type include private equity and venture capital. Private equity occurs when an individual or group invests in a middle-market company in need of capital and benefits later on if the company is resold or goes public. Venture capital is a similar process, with the difference being that the investments usually go to start-up companies.

Another way for individuals to make oil investments is through the futures market. An investor who buys oil futures enters into a contract to either buy or sell oil at some point in the future. If the investor can anticipate the way that the price of oil is going to move, she can benefit from the discrepancy between the price of the options contract and the future price of oil.

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