Your Questions About How To Invest In Oil

Sandy asks…

Wouldn’t changing the way people can invest in oil stop the never ending rise in gas prices?

I’m not stock market savy, however, it seems to me the way to take the speculation out of the oil market is to stop the speculators. Change the way people can invest in things like oil, rice , and corn. Allow them to buy stock, but not things like futures.

Am I completely off base, or is this a solution to stop the handful of investors ripping the rest of the world off? When people can’t afford to buy food for their families or pay rent, something needs to be done. Any other suggestions?

John answers:

You are right on with what you are saying.

Prices are being driven up right now by trades who are buying oil, but never plan to take delivery of it. They do not have any means to hold the oil if it was ever brought to them, so they sell it and make a major profit before the delivery date. Most of the speculators who are trading in oil right now are investment companies, not oil company’s.

So what is the solution to the problem? Only allow people who have the means to take delivery of oil trade in oil. This means that only oil company’s can by and sell oil futures because they are the only ones with the ability to use the oil that they are buying.

Donna asks…

What causes stock prices to rise and fall?

Hi i was curious as to what all the factors are that affect the rise and fall of stock prices in the stock market.

By the way… I’m quite interested in investing in oil companies, is there anything in particular i should know about them?

John answers:

Supply and demand.

An out of favor stock with more sellers in the market price will fall and vice versa a is business which is expected to outperform more demand less supply stock price will go up.

In relation to oil companies it is important to take note that commodity based businesses do not have the power to set their own prices they are at the mercy of the oil market e.g. Nymex.

Oil companies opened oil fields that would only make a profit at the market price of oil above $80 to $100 per barrel this led to them being shut down until the price recovers.

On a NPV value basis a situation like this could cause the project to produce either a loss or marginal profit depending on how long it takes for the oil market to recover to higher prices.

It is important to invest in non commodity based businesses that have the power to set their own prices e.g. Coca Cola (KO) or McDonalds (MCD). (Not a stock recommendation).

Steven asks…

do you think the oil revenue should be share to the arab peoples?

i think the oil revenue should be share to all the arab,not only one family and his entourage to benefice or to live in luxury ,this is why there are terrorist too many young man and woman dint have nothing to do ,no health care no sanitation,university,they dint invest the oil money on the peoples to have a better education,this is why this young dint have nothing to loose ,dint care about life,no arab should be live in poverty their government are making millions a day.

John answers:

The so called arab oil exists in Saudi Arabia and gulf countries. These countries do live in a luxury most Americans can’t afford. These countries employ millions of Egyptians, Moroccans, Lebanese, Syrians, Indians etc They even employ Americans and Europeans.

Other Arab countries which doesn’t have oil are for example, Syria, Jordan, Yemen, Lebanon, Egypt, Algeria, Tunisia, Morocco. All these countries population are poor.

You simply assume that all arab countries are a homogeneous nation with no borders, this is not correct. There is no poverty problem or terror problem is countries with oil wealth. Countries with no natural resources suffer from what you mentioned.

It is like assuming that all european countries are the same country, and the wealth of western europe should be distributed on the poor eastern countries.

Or it is like assuming that all Latin countries are a homogeneous nation, and the oil wealth of Mexico should be used to solve poverty in Peru and Nicaragua.

Daniel asks…

Whats the difference between China and a Democrat?

China is willing to invest in oil projects in North America

http://finance.yahoo.com/news/PetroChina-to-take-oil-sands-apf-2273509178.html?x=0

Why do Democrats refuse to increase developing oil fields ?
Is it because of their anti corporate profit beliefs?

John answers:

Gee, I thought the answer was going to be that Republicans couldn’t tell them apart.

James asks…

What is the best way to invest in oil?

I want to invest in oil and I was wondering what is the best vehicle in which to do this

John answers:

You can invest in an Exchange Traded Note stock symbol OIL.
Http://finance.google.com/finance?q=oil

But this ETN like all ETN’s has a counterparty risk which you need to consider before you invest.
Http://seekingalpha.com/article/25162-etns-useful-but-watch-out-for-counter-party-risk
http://seekingalpha.com/article/95900-an-etn-primer-buyer-beware-of-even-good-credit-ratings

You can also buy an ETF stock symbol OIH.
Http://etf.stock-encyclopedia.com/OIH.html

And you can also buy oil companies such as XOM or COP.

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