An Introduction to Oil Investments for Beginners
Before you start diving deeper into investment options and take your first step, let us introduce you to the world of oil industry and investment to put it all in perspective. People participate in oil economy everyday: grocery stores, online delivery solutions, many heating and electric systems depend on oil to function. Apart from transportation, the use of petrochemicals in plastic materials guarantees that it makes up part of our daily life. Some people may even be surprised to know, that natural gas comes out as a part of oil extraction process.
The volume of oil used daily, combined with the current crude oil prices, around $70 mark for a barrel, makes for an industry with yearly activity worth trillions of dollars. However, the oil market has a few peculiarities to consider before you decide where to place your investment dollar.
What Makes Oil Investment Different From Other Investments?
Price Formation 101
There are a lot of factors this market depends on. Today, because of the demand of nearly 100 million barrels of oil per day and the associated costs of storing it, the ratio of supply to demand affected prices dramatically. For example, as recently as 2016, price of oil dipped to $30/barrel in response to overproduction. Such fluctuation helps drive innovation and smooth out irregularities in production, but can also be too much for novice investors to stomach.
Oil storage is relatively expensive due to requirements like safety, space and security. The storage cost also adds friction to the market and can quickly create problems for small oil producers who are unable to quickly find a market for their oil. It can sometimes force them to sell oil at a loss in order to avoid continuing to rack up storage costs. Shipping and transportation costs also add up to the price. North Sea oil will trade for a significantly different price than oil from the West Texas oil fields, or Iran, oe other Middle Eastern oil producers, or Russia. Some oil costs more to refine than others, depending on it’s quality, consistency, and purity.
By the way, there isn’t really a single “barrel” of oil. In reality, there are many different types of crude oil from a variety of sources that have differing prices. The price of a “barrel of oil” generally refers to the price of a barrel of “brent crude,” which is oil from the North Sea and Alaskan oil fields.
Effects of OPEC & The Fracking Revolution
Apart from logistics and primary costs, there’s also a “supply-and-demand” factor in oil pricing which can introduce many variables and affect oil stocks. Some of these variables are objective, and some are subjective. In many markets “supply” is often dictated by how much gold can be pulled from a mine, while the oil market has a group within it that will often deliberately slow down production in order to affect the price. That group is OPEC, an organization of 14 oil producing nations that control more than 40% of the global oil supply. They make active decisions designed to create concrete results based on their needs at a given time. Anyone considering investing in oil should pay attention to their activities in order to have a handle on the market.
OPEC is a significant player in the market, but with technologies like fracking and increasingly sophisticated offshore drilling rigs, countries like the United States have gone from net importers of oil to being able to effectively become net exporters of U.S. oil in some years. Fracking is a technology that allows extracting oil from fields previously too complicated to be worth the investment and time. Thus United States oil has a great potential to spread across the world. While it may seem that technology provided us with the bright future full of oil, there is one nuance, which may affect.
The Peak Oil Factor
Peak Oil is the theoretical point in time when the maximum oil extraction capacity will be reached and oil reserves on earth are going to enter terminal decline. It is unknown when it happens and how exactly it will affect oil markets, but we can assume at least initially that if demand remains the same, but supply decreases, prices will go up. Meanwhile, International Energy Agency (IEA) predicts a significant growth in demand at least up until 2022. Oil is a finite resource. The earth is making more of it, but it takes millions of years and with any finite resource, there is a peak moment where you have consumed more of it than there is left.
The Oil Industry Operating Cycle
The overall operating cycle in the oil industry can be split into three steps, traditionally called upstream, midstream, and downstream. Oil companies usually specify on one particular step. Upstream companies are out there doing the new exploration and exploitation, while midstream companies doing the transportation and refining, and downstream handle the final mile of delivery, such as gas stations. While some companies (like Exxonmobil and Chevron among others) are large players in upstream, midstream and downstream, others specialize in individual stages in the production process. With that in mind, let’s move on to investment options.
Traditional Investment Options
Who is an Accredited Investor?
It is important to start with the fact that not all traditional investments are accessible for general public. In the United States, certain investments are considered a “high risk” and require investors to become “accredited investors”, meaning they must have a net worth of more than $1million (not including the worth of their primary residence), or have an income proof of $200,000/year, $300,000 if married.
Directly Purchasing Oil Company Stock
Thinking about stock markets and NYSE would be a somewhat correct line of thought, but there’s no need to rush in attempt to conquer oil and gas industry. However, there are still many ways to invest lesser sums of money in more traditional investment vehicles, if you aren’t accredited. You can directly purchase stock in an oil company, or a support company and there are many methods for doing so. For example, you can have an account set up with an online trading platform like eTrade, Charles Schwab, or Ameritrade. These platforms, which can be linked directly to your bank account, allow you to make purchases of publicly traded stocks directly for a small fee.
Investing in Oil ETFs and Mutual Funds
While many view both of these options as “set it and forget it” investments, there is still some benefit to paying attention to the marketplace and being on the lookout for wise investments to make smart decisions about when to move your money out of one arena and into another.
Both Exchange Traded Funds and Mutual Funds work by bundling together the cash of a variety of investors and managing it investing in a wide variety of investment vehicles for the benefit of all the sub investors. Oil ETFs tend to have lower overall fees than Mutual funds, but mutual funds are more likely to be actively managed, meaning that more intervention is taken to change the portfolio and rebalance in response to market demands.
Investing directly in any Energy ETF or a mutual fund is often possible through direct connection to a company, or on the abovementioned trading platforms.
Master Limited Partnership (MLP)
An MLP is a partnership, where one receives shares in profits, but has no control over decisions in the business. MLPs are traded publicly on national exchange, present relatively low risk and also offer a significant tax advantage so that limited partners can reduce their taxable income. This is a type of long term, steady cash flow investment. However, there are some downsides to MLPs, like relatively low interest rate (which makes perfect sense for long term investments) and the fact that, to put it simply, you’re going to have lots of forms to fill out. Thus you will have to pay your accountant or a financial advisor more annually, regardless the profit you make.
Investment Options in the Digital Era
All the traditional options allow you to invest in company or a number of companies (as with ETFs, for example). Such options force you to either stay satisfied with whatever interest rate you have with your investment or expand your portfolio, investing in more companies, while simultaneously increasing your risks.
However, digital revolution has already happened and the world of finances and investment couldn’t dodge its effects. Modern investment solutions not only allow you to invest online with ease, but also have a much lower investment threshold. Since not so long ago, some investment services in the US allow to invest as little as $2000 in Texas oil wells. Well, this is just a peak of the digital iceberg.
The latest oil investing platform established by Japanese company EKEN allows everyone in the world to invest in oil globally with just an $88 entry threshold. This platform is Oil.Vision and it makes investing in oil almost as easy as making a purchase on Amazon, allowing your investments to cover all three steps of oil industry cycle. All you have to do is create an account, verify your id, link a credit card, PayPal or a crypto wallet to your account and start your journey. No attorneys, no accountants, no paperwork torture — accessible and convenient. And keep in mind that investing in Oil.Vision, you invest not in a single company (or multiple companies), operating in extraction, refinement, or transportation of oil, but in the global oil economy and can get up to 21% of yearly return rate. On top of that, the platform also offers a lucrative referral bonus system. In a matter of fact, provided you have enough money, or being an accredited investor, you may even become a shareholder of their Oil Billion Fund, to where 10% of the Oil.Vision profit is redirected.
Yes, like with any investment, there still are some risks, but you can painlessly verify the viability of such an investment for only $88. At the end of the day, as mentioned above, technology provides new ways and new opportunities for a wider range of people with each step it takes. All that makes options like Oil.Vision clearly a lower-risk investment.
To sum it up on oil investments
Investing in the energy market, whether it is oil & gas, or any other commodity market has the potential to be a smart move for many investors. One should always pay attention to their investments and put some time and energy into understanding the fundamental forces at play. There are still some opportunities for pure upstream investing. However, as both traditional companies and new upstarts pursue new field development, technological innovation makes traditionally unattractive fields more accessible to general public.
But there are still several dynamic forces like OPEC and alternative energy sources, that a smart investor should consider in order to ensure they are able to time their investments wisely. For example: Stock prices for Canadian oil recently dropped by 60%, which came as a crisis to oil producers. Western Canadian Select now sits around $14 mark, whereas American Exxonmobil (XOM) is traded around $72 mark. Thus, as you pursue your investments in oil, it’s important to constantly continue your educational process to ensure you are making the best decisions possible with your investment dollar.
Japanese oil.vision offers accessible digital solution for investing in oil industry
In the world of finances investing money has always been a popular way of conserving and multiplying one’s funds. As online solutions become basic commodities and pocket devices turn into wearables, the way we interact with each other, businesses and money changes. Convenience and accessibility are driving factors in technological advancement. Since the Internet developed into a public domain, public access as a concept quickly became the pillar idea behind it. It may seem as a peaking point to some people, but it is barely a next level of digital environment we have been establishing for over 20 years.
Online digital crowd investing
Among all amenities technologies provide are new solutions to make, save and multiply money. Companies start crowdfunding campaigns, individuals start businesses online and open savings accounts in a few clicks. Today one can even invest money online. Most investment options are not as complicated as they used to be before the digital era, but a lot of paths in the world of investments are blocked off for the majority of private individuals for different reasons. It usually is due to either a complexity of the process, or inability of an individual to meet financial prerequisites for such a venture. Sometimes it is both and while we all would agree that investing in oil industry definitely seems to be way out of average citizens’ financial reach, that is subject to change.
Japanese company eKen recently started a promising project, Oil.Vision, revolving around the concept of crowdinvesting. The project is targeting the acquisition and management of enterprises operating in the industry to perform their renovation and optimization, making them into profitable assets of Oil.Vision global network. As a digital investment platform this project takes financial interactions to the next level, making investments in oil industry accessible for John Q. Public all around the world.
Oil.Vision allows people to invest a minimum of only ¥10000 or its equivalent in cryptocurrency. All it takes to become the Oil.Vision beneficiary is a verified account you can create on their website oil.vision and a verified bank card. Other available options are PayPal, cryptocurrency or SWIFT remittance — the choice is yours. It is pretty simple and profitable considering a yearly return rate of up to 21% over up to nine years. While Oil.Vision operates upon Etherium, dividends are paid in fiat or cryptocurrency of your choice.
From digital investor to shareholder
On top of all the benefits available, early investors gain a privilege to become members of the Oil Billion Fund. Oil.Vision is set to redirect 10% of its profit to the fund with one billion shares. What makes it even more appealing is that shares of the fund (Oil Vision Share or OVS in short) are given out for free. Early investors receive 0.1 of a share for each dollar they invest in Oil.Vision. As a shareholder you will receive revenue monthly on the 15th day of each month. And that is in addition to whatever profit you may have from the initial investment.
Top it off with a referral program allowing you to benefit even more depending on how many investors you attract. There is a personal plan for Individual investors that consists of five tiers with various bonuses. You get a 7% of attracted investments and five Oil Vision Shares for ten referrals and up to 9% and 50 shares for 50 referrals. Business plan for companies includes three tiers with up to 12% reward and a bonus of 100 shares.
Accessibility, publicity and expertise
Oil.Vision is a team of high grade specialists in management, economics, oil industry and digital technologies working together to maximize the potential of each facility joining the project and improve online investment experience for people around the world. Investing money in oil industry is now possible in just one click: fill in how much money you want to invest, select payment method and click “Create Contract”. Oil.Vision unifies oil industry, owners of oil enterprises, investment companies and private investors of various calibers into a single digital platform. The project and the fund are open to public and available online for companies, professional investors and private individuals. Oil.Vision has a detailed roadmap laid out and a well presented portfolio listing facilities adjoined so far. All facilities pass mandatory financial, technical and management audit and thus present a reliable investment platform.