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I was really hesitant to ask this question, but based on the reception of this other question

Good investment options to take advantage of current low market

I hope this one won't be off-topic. Also a premise: as it will be abundantly clear from my question, I'm as ignorant as one can get with respect to the stock market, so feel free to point out inconsistencies and/or pure BS in my question.

So, right now Brent Crude is at 28.16$ (it was above 70$ this time last year, and it hasn't ever gone below 30$ since at least 2016). For various reasons I'm 100% sure that the oil price will go up in a timeframe of years, and the same will happen with natural gas.

Is it possible to trade these commodities on the stock market? I don't care about dividends. As a commenter to the other question pointed out, a barrel of oil doesn't pay dividends. It doesn't matter. As long as I can buy it today and sell it at a date of my choosing, I'm fine. Is it possible to do that? What do I need to do, just open a portfolio with my (online) bank? Would it be better to buy financial instruments connected with these commodities? I heard of futures, but I don't know how they work.

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    Efficient market hypothesis: you cannot profit by betting that information widely known is correct, you can only profit if you correctly guess/deduce that such information is wrong. Widely known information is already factored into the price of a security. – Jared Smith Mar 23 '20 at 18:37
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    "Is it possible to take advantage of the LOW market by BUYing" - that's all you needed to say. You are literally asking if you should "Buy Low". Yes, and "Sell High". – Harper - Reinstate Monica Mar 23 '20 at 21:12
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    "Is it possible to trade these commodities on the stock market?" It's a lot easier to trade them on the commodities market. It would be possible to find stocks there are correlated with them, but not perfectly. – Acccumulation Mar 23 '20 at 23:05
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    The premise that you have unquestioningly accepted is that the market is currently low, but that is recency bias, whereby you believe that the market before the crash was "normal". In fact it is a reasonably hypothesis that the market before the crash was absurdly high, and the current pricing is more in line with reality. In which case we do not know if the market is currently "high" or "low" over your investment timeframe. Where you are getting 100% certainty about the future price of a good is unclear; you say both that you do not understand the market and you are certain about outcomes. – Eric Lippert Mar 24 '20 at 0:42
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    @NotThatGuy - The premise that price is "determined by the experts" is nonsense. The market is an auction and it moves based on the action of its participants. If there was an ounce of truth to this, the experts would all be Warren Buffets. They're not. This is a fear based volatile market environment and one doesn't have to "know better than those who make careers out of trying to predict stock prices." There's no prediction involved here. Irrational selling has made many, many stocks undervalued compared to their peers. – Bob Baerker Mar 24 '20 at 16:10
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As long as I can buy it today and sell it at a date of my choosing

Typically investors don't purchase shares representing indefinite ownership of commodities, instead they are traded as futures. Oil Futures have a settlement date, i.e. they expire and you have to buy them again.

Let's take a look at NYMEX WTI Light Sweet Crude Oil futures.

Here we can see that people are betting that the May 2020 oil price is $22.40. If you buy May 2020, it expires in May 2020.

Instead if you buy April 2021 futures, the price is anticipated to be $32.53. This means that if the oil price increases by 45% from $22.40 to $32.53 in 12 months, you still won't make money.

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Second, you have to understand that ETFs, such as USCF United States Oil Fund LP (USO), only hold the future month that expires the quickest.

USO's Benchmark is the near month crude oil futures contract traded on the NYMEX. If the near month futures contract is within two weeks of expiration, the Benchmark will be the next month contract to expire.

If you have a strong belief that oil/gas will recover, it would be wise to buy an oil/gas producer/refiner ETF instead of the commodity itself.

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  • This ETF thing sounds interesting. Could you add a little explanation about what it is, or link to existing answers? – DeltaIV Mar 23 '20 at 10:32
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    NYMEX crude oil futures are physically delivered at expiration. Your broker will probably make you sell the contract for cash a few days before expiration if it isn't set up to handle physical settlement. – Dev1 Mar 23 '20 at 23:04
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    @nick012000 Do you know how to check the pressure of barrels of crude oil? How to rotate them? How to dispose of leaking fluid within hazardous materials regulations? – Charles Mar 24 '20 at 4:01
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    @nick012000: Do you even have a permit for that? Also, who is going to buy those barrels from you? Sure, you may claim that the barrels still contain crude oil, but that $1000 quality check is going to eat into your profits. There are companies which store oil on a commercial basis (e.g. Vopak); they can handle physical delivery. But they're not going to deal with you for just a few barrels. – MSalters Mar 24 '20 at 9:35
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    @nick012000 There was a story about that in the daily wtf years ago: thedailywtf.com/articles/Special-Delivery – Naktibalda Mar 24 '20 at 9:49
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Is it possible to trade these commodities on the stock market?

No. Commodities are traded in a commodities market. Stock markets are for stocks. Please do a lot of research prior to executing trades it is akin to options investing. However you can trade companies that benefit from increasing prices in oil and gas. For example Exxon or for a more diversified selection the Vanguard Energy ETF.

Is it possible to do that?

Yes of course. Here is one example. Keep in mind that you will be trading contracts with a unit size of 1,000 barrels and that they are contracts with expiration dates.

I don't care about dividends.

It doesn't matter. As long as I can buy it today and sell it at a date of my choosing, I'm fine.

These comments suggest you do not really understand the risks. You may want to educate yourself quite a bit.

The current bear market is nothing new. Its happened before and will again. Every day the markets provide opportunity, some are better for buying others for selling. It is impossible to reliably time the market unless your horizon is long term.

Having said that I agree with you. To me this bear market has no merit, and will turn around very quickly. However some really smart and savvy people disagree with me. They feel that this bear market will last for a couple of years.

My strategy was to pick up some stocks at a bargain and invest heavily in index funds. I did it with some of my savings, and money I had earmarked for business opportunities. Also I directed 100% of my 401K contributions to stocks. Of course I maintained a healthy emergency fund.

So if I am wrong, it doesn't matter. I will get dividends (even if they are lowered in a long term bear market), and eventually the prices will rebound. Much like investors were rewarded after the crash in 2009, I expect to be rewarded in the future.

With futures contracts, you have to guess not only the price that the future contract will be, but also the date it will get there. You have to decide if the premium you pay is worth the expected change in price. You are probably correct that the price of oil will rise in the future, but when? by how much?

With stocks, you may think a stock will rise by 20% in 12 months, but if only rises 5% in 24 months you still made a profit. Depending on the contracts, the same situation, using commodities or options, could result in devastating losses.

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So, right now Brent Crude is at 28.16$ (it was above 70$ this time last year, and it hasn't ever gone below 30$ since at least 2016). For various reasons I'm 100% sure that the oil price will go up in a timeframe of years, and the same will happen with natural gas.

There's a fair likelihood that oil price is going to be more expensive in the future. But, it is likely too that oil will be more heavily taxed in the future due to emitting carbon dioxide, meaning the price a consumer pays will be far greater than the price a producer gets. So, it is not certain that the producer price is going to increase. A hefty tax could cause the producer and consumer prices to diverge.

I would recommend you to calculate how much oil you need, both directly (in your car) and indirectly (e.g. hauling the goods you buy from the grocery store to the store requires some oil).

For example, I estimated my oil need is around 10 barrels per year. Most of that is direct use in my car; some of that is indirect use via services I need and products I purchase.

Then I would recommend you to take a look at various oil companies. For example, Exxon Mobil produces 2266 thousand barrels per day or about 827 million barrels per year. There are 4270 million shares outstanding, so you need about 5.2 shares for every barrel/year of usage.

If you want to have your share of oil usage covered, and you use 10 barrels of oil per year like I use, just buy 5.2 * 10 = 52 shares of Exxon Mobil from the stock market.

Anything less than this, and you're taking a hit from oil price increasing.

Anything more than this, and you're taking a hit from oil price not increasing.

I'd say go ahead and buy the 52 shares of Exxon Mobil (or some other oil company).

Just don't buy a large amount of shares, e.g. 1000 shares, because if you do so, you're going to regret if oil price is not going to increase.

For taxation reasons, you might want to buy slightly more than 52 shares of Exxon Mobil. For example, I estimate every dollar I pay for oil would flow back to me as 50 cents, if I own the calculated amount of an oil company. The rest would be taxes. So, to take that taxation into account, I could double the 52-share investment into 104 shares.

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