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Investing In Oil – Is It Still Profitable for Investors?

Investing In Oil – Is It Still Profitable for Investors?

It’s true to say that the global markets remain in a state of flux in the wake of the coronavirus, with stocks and commodities showcasing particularly high levels of volatility.

Of course, certain commodities have seen wild price fluctuations for a while now, with oil offering a case in point. In fact, the coronavirus pandemic simply accelerated the trend for fluctuating oil prices, which is underpinned by a continued imbalance between supply and demand across the globe.

However, the price of oil has been on the rise recently, but does it remain a viable option for investors in 2021? Let’s find out.

The Rise and Rise of oil Prices

Recently, crude oil prices extended gain for five consecutive days, rallying to their highest levels since October 2018.

More specifically, the asset gained an impressive $0.99 (or 1.27%) to reach $79.08 per barrel at the beginning of the week, while US West Texas Intermediate (WTI) peaked at $74.85 per barrel during the same period.

This has continued a year of incremental gains in the oil market, as the sector continues to recover from the global decline in demand that occurred in the wake of the coronavirus pandemic.

Undoubtedly, a relative return to normal and global increase in demand has contributed to rising prices, particularly as refineries throughout the world have failed to keep pace with this as it gradually returns to pre-pandemic levels.

Interestingly, this represents a significant reversal in fortunes in the marketplace, as prices have been historically hampered since 2014 by an excess of supply. This saw a number of OPEC members dramatically scale their production efforts, causing prices to move in an increasingly narrow range as demand remained steady.

Another key factor is the rising popularity of natural gas, which has pushed demand for oil even further as users start to transition to new fuel sources.

This will have an even greater impact going forward, and there’s no immediate sign that demand or prices will falter at any point in the foreseeable future.

How to Invest in Oil?

There’s no doubt that focusing on oil market fundamentals and the deterministic factors that influence supply and demand is crucial for investors, as is reacting to the very latest news and industry trends.

But what are the best practical oil investment vehicles, especially as we enter a volatile fourth quarter where prices are likely to fluctuate around their upper range.

Certainly, such a trend will accelerate the fast-paced and inherently volatile nature of oil prices, meaning that successful investors are most likely to adopt a relatively short-term approach to achieve their desired gains.

For example, you could invest in oil by way of a forex CFD, which enables you to speculate on projected future price movements without assuming ownership of the underlying asset.

By also focusing on short-term contract dates, you can optimise your chances of success and use the oil market’s volatility to your advantage.