I have around 60K $. Thinking about investing in Oil, how to proceed?

Question

During the last ~2.5 years I have managed to save around 60K $, the money is sitting in the bank account and has been there for a while. This money could be doubled as my girlfriend's savings are approximately the same and she is also looking for an investment opportunity. We are both 26 at this time and have no assets or debts other than this money.

I have been thinking for a while about investing it and the recent Oil price drop, I think presents an excellent opportunity. I was hoping that someone could help me respond a couple of questions:

1. I have a conservative approach to these savings that's why they have been sitting on the savings account. Is Oil considered a riskier product compared to Stock or Real Estate? If so given my (our) current situation, What would you suggest?

2. Assuming that I decide to move forward, I have read that one way to get exposure to oil prices is through an Oil Company stock, I dislike this option as that company's results could be affected by many other factors aside from oil prices. What is the best way to link your results to actual oil prices?

Thank you!

Answer 1

One possibility would be to invest in a crude oil ETF (or maybe technically they're an ETP), which should be easily accessible through any stock trading platform. In theory, the value of these investments is directly tied to the oil price. There's a list of such ETFs and some comments here. But see also here about some of the problems with such things in practice, and some other products aiming to avoid those issues.

Personally I find the idea of putting all my savings into such a vehicle absolutely horrifying; I wouldn't contemplate having more than a small percentage of a much more well diversified portfolio invested in something like that myself, and IMHO it's a completely unsuitable investment for a novice investor. I strongly suggest you read up on topics like portfolio construction and asset allocation (nice introductory article here and here, although maybe UK oriented; US SEC has some dry info here) before proceeding further and putting your savings at risk.

Answer 2

This is only a partial answer to your question #1.

If you have a conservative approach to savings (and, actually, even if you don't), you should not invest all of your money in any single industry or product. If you want to invest some money in oil, okay, but don't overdo it.

If your larger goal is to invest the money in a manner that is less risky but still more lucrative than a savings account, you should read up on personal finance and investing to get a sense of what options are available. A commonly-recommended option is to invest in low-cost index funds that mirror the performance of the stock market as a whole. The question of "how should I invest" is very broad, but you can find lots of starting points in other questions on this site, by googling, or by visiting your local library.

Answer 3

If you've decided to ignore the sound advice re: oil company stocks, and you want something directly linked to the price of oil, do the following:

1. call a commodities trader (see financial pages, WSJ)
2. tell the individual your situation

3. Understand that oil producers would like avoid the risk of a price drop, and oil consumers (refiners, electric utilities, etc.) would like to avoid the risk of a price rise.

4. Understand that you are about to assume their risk.

5. accept the very real & likely possibility that you will lose your money. Quickly.
6. act accordingly

Answer 4

1. Royalty trusts track oil prices (they're a pure play on ownership of a portfolio of mineral rights and do not otherwise have the operations that the oil companies themselves have). Many publicly traded ones listed at the embedded wikipedia link.

2. Oil tankers are having a bang up business right now as described in the article, but that's because of the low prices and flood of product from the middle east. The article notes that inventories are near capacity, so terminals and pipelines may be in for a few good years, though these do not directly track oil price. However, as a way to bet on oil or oil services, many terminals and pipelines are organized as publicly traded master limited partnerships or MLPs, often spun out of a major oil company for tax reasons, allowing fine-grained investment in specific assets.