Oil has long been referred to as “black gold” because its price swings serve as an indicator of economic growth and stability. Since the COVID-19 pandemic erupted in early 2020, this has certainly been true. In the past year, the price of oil has dropped precipitously, from just over $60-per-barrel to just over $20-per-barrel. This sudden decrease in price has caused a lot of economic turbulence, from job losses to bankruptcies.
For investors, this drop in price has created a unique opportunity, especially when it comes to oil stocks. The old saying still rings true: “Buy when there’s blood in the streets”. This means that, even though the oil market is currently in a period of contraction, there are still ways to make money.
One way to take advantage of the market volatility is to look for undervalued oil stocks. With the price of oil so low, you can look for companies with strong balance sheets, good cash flows, and potential for growth, and purchase their stocks at a discounted rate.
Another way to capitalize on the current market conditions is to use oil futures contracts. By buying contracts, you can speculate on the future price of oil and protect yourself from sudden price changes.
Finally, investors may consider Exchange Traded Funds (ETFs) that track oil prices. These allow you to buy an index of oil stocks and gain exposure to the industry without having to purchase individual company shares.
Oil will undoubtedly remain an important commodity in the years to come, and the current market conditions present an opportunity to make money from it. Although there are risks associated with investment strategies related to oil, those willing to look beyond the blood in the streets can potentially reap substantial gains.