Want to make money off of crude oil futures? There’s certainly a potential to produce profits in the near future. In case you haven’t noticed, crude oil is currently selling for well less than $50 dollars a barrel. It is actually hovering near recent historical lows. This means that oil is now cheaper to buy than it has been in years.
Oil Per Barrel On Sale
So are there opportunities to invest in oil futures? After all, if oil is cheap now, it should be a good buy, right? Oil will have to rise once again, right? It wasn’t all too long ago that oil was selling for about $100 dollars a barrel. Now, however, it’s selling for less than $40 dollars a barrel.
It’s entirely possible that crude oil prices will indeed rise in the near future. If you want to make money off of this potential rise, one way to do so is through the investment in oil futures. You should be warned, however, that while it is likely that oil prices will go up at some point in the future, this increase may not happen in the near future.
The Culprits Behind Oil Price Drop
Commodity markets can be difficult to predict. The supply and demand for various commodities can change very quickly. Oil demand has been high for years. However, the increased proliferation of green technology in combination with a slow global economy means that demand for crude has been slowing in recent months.
At the same time, new technologies that allow for the economically feasible extraction of oil from tar sands, along with more advanced deep sea drilling techniques, means that supply is greater now than it has been in years. Further, with the ending of sanctions on Iran, more oil will be flowing into global markets. On top of that, investors continue to discover new oil fields (though the rate of discovery has been slowing).
When you consider all of these factors, it’s easy to see why crude oil is selling for so little right now. After all, basic economics says that if supply increases, but demand remains steady or decreases, prices will drop. Right now in global markets this is precisely what we are seeing.
Of course, if the economy were to heat up again, then demand for petroleum would likely increase substantially. If this were to happen, oil future prices would also rise. As such, this presents an opportunity for investors to make money. That is, if they can correctly predict when the global economy will gain steam again. Then again, actually doing this is easier said than done.
How to Make (or Lose) Money From Crude Oil Futures
Crude oil futures refer to contracts in which a buyer (often an investor) agrees to exchange money now in return for a promise of future delivery for oil. In other words, you’ll pay for oil now, but the oil itself won’t be delivered until a future date in time. Of course, most investors aren’t looking to buy oil directly. After all, where would you store oil if you were an investor?
If and when oil prices rise, however, you’d be able to sell off your future contract to someone who is looking to buy the actual oil itself. In other cases, brokers will agree to settle the difference in cash. Fact is, many traders want to buy futures but they don’t want to take delivery of any actual products. Meanwhile, many brokers would gladly trade futures, but they also want nothing to do with the commodities themselves.
In such cases it is possible to agree to settle in cash. This means that if futures prices drop for oil or any other given commodity, you will agree to pay the broker the difference in cash. Meanwhile, the broker agrees to pay you, the buyer, if prices should rise. This is a highly convenient way for people and companies to trade who don’t actually want to deal in commodities themselves.
Besides crude oil futures, you can buy futures in a wide variety of other products. These include heating oil futures, corn futures, wheat, and even market based futures that are tied to stock indices. Also, there are many tools available for you to conduct further research. Some of these tools are an oil futures chart, advanced data crunching programs, and various other pieces of information.
Oil futures prices are sure to change in the days, weeks, and months ahead. When it comes to investing, where there is change, there is opportunity, and the same is true of oil and other commodity markets. If you are looking for a good investment opportunity, you owe it to yourself to check out oil and other futures. So if you’re looking to diversify your portfolio, or to start investing in the first place, make sure you consider commodities and futures.