Financial Dictionary -> Investing -> Oil

Oil is one of the most sought after commodities in the world. It is used by almost everyone on a daily basis, whether in your vehicle as fuel, packaging for food and products, in paint and even in your toothpaste. The demand is so great that even wars are partially fought for oil. People die for this stuff!

Due to its worldwide demand and ever decreasing supply, oil is also a very profitable form of investment. If you have oil, you're always going to make money, and since the economic downturn in 2008 people are looking to invest more in natural resources such as Gold, and yes oil, because they will always hold their value and demand, due to their limited supply and global use. We don't need a 50 inch plasma TV, but we do need oil.

The simplest and most common way of investing in oil is with the buying of US Oil Fund shares. This ETF is more a form of betting on the oil price, because the USO is just an asset that tracks the oil price. Your returns are based on whatever the price of oil is. This is treated as the stock value.

Other Exchange Traded Funds let you invest in the oil industry as a whole, by pooling several big companies in to one fund. This tacks the general rise and falls of the whole industry and is common with experienced investors.

The next obvious method is actually buying individual stock in big oil companies that tend to hold steady. A complete opposite method is to invest in new oil companies that have just "struck oil". This can make huge returns, but equally big losses as oil tends to be found in risky locations. The prior is more advised for beginners.

Despite its global demand keeping oil profitable, due to world issues oil is still extremely volatile and the price fluctuates all the time.