Oil well investments offer opportunities for both accredited and everyday investors to earn returns. Contrary to popular belief, you don’t need millions of dollars to invest in the oil and gas industry. Options such as oil futures, ETFs, and mutual funds allow you to get started with small sums of money. If you have more financial resources, you can look into direct participation programs, which can potentially provide higher returns. Below we’ll dive into oil well investments to help you decide which vehicles may be right for you.
Why Consider Oil Well Investments?
Petroleum (also known as crude oil) is a non-renewable resource that’s in high demand. It’s extracted from the ground and turned into various essential products such as gasoline, plastic, and more. Global oil demand is expected to continue growing throughout 2024 and 2025, so it could be a good time to invest in the oil and gas industry.
Oil well investments offer a number of benefits that may make them attractive to investors. Since oil prices aren’t linked to the stock market, investing in the oil and gas industry can help diversify your portfolio. Direct and indirect oil well investments can also serve as a hedge against inflation. Additionally, certain vehicles such as DPPs may provide the opportunity to earn passive income and claim tax benefits.
Types of Oil Well Investments
There are a few main types of oil well investments for you to consider depending on how much money you have to invest.
Indirect, Low-Cost Options
Indirect oil investments such as ETFs allow you to get your feet wet in the industry without requiring a lot of capital. Oil ETFs and mutual funds are pooled investment funds that allow you to buy a share in a diversified portfolio of assets. They can give you exposure to oil futures, company stocks, and more.
ETFs usually don’t have investment minimums, so you don’t need much money or accredited investor status to get started. However, certain mutual funds may require an initial investment of several hundred or thousand dollars. Still, investing in mutual funds and ETFs is one of the simplest ways to dip your toes into the energy sector.
Another low-cost option is oil futures. They allow you to take a position on the movement of oil prices (either up or down) and potentially earn a profit by doing so. However, oil futures involve more risk and require more investing know-how than ETFs and mutual funds, so exercise caution.
Finally, average investors can consider buying fractional shares of individual oil company stocks, such as Exxon or BP. Fractional shares allow you to buy a portion of a stock, making them an inexpensive option. Keep in mind that individual stocks tend to be more volatile than ETFs and mutual funds. However, they could potentially yield higher returns, making them a suitable choice for investors with higher risk appetite.
Direct Oil Well Investments
Accredited investors can also access direct oil well investments such as direct participation programs. Investors can qualify for accredited status if they have a net worth of at least $1 million. High-earners who have netted an income greater than $200,000 for at least two years can also become accredited.
This status allows you to buy into direct participation programs, which are non-traded oil well investments. These programs allow investors to pool their money and invest in ongoing projects in the energy sector, such as exploratory or developmental drilling. DPPs offer the opportunity for higher returns and passive income by allowing you to share in the profits of drilling projects.
However, they do come with risks such as the possibility that you could lose money. They’re also designed to be held for several years and generally lack liquidity. Since DPPs aren’t publicly traded, it may be hard to pull your money out. But on the upside, DPPs offer valuable tax benefits that could make them a worthy addition to your portfolio. You can learn more about DPPs and buying oil wells here.
Do Your Research
Ultimately, the best way to dominate oil well investments is to do your research. Becoming informed on market trends could help you spot opportunities to make money on oil futures, company stocks, or even DPPs.
What’s your opinion on oil well investments? Would you consider investing in the energy sector? Share your thoughts in the comments.
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