How To Invest In Oil...

How To Invest In Oil

As the new year starts, investors are finding themselves in a position they didn't anticipate. The United States. financial system looks like it is growing more than what most experts anticipated.

It is tough to state whether that expansion will continue to accelerate in 2012. However evidence that the economy may be strengthening have raised oil prices already. That's partly because energy companies often lead the way during expansions as more trucks loaded with items clog the highways and more people replenish their cars with gas on the way to their job.

But do not go out and buy giant energy company stock options, ETF's or mutual funds from the likes of Exxon Mobil Corp or Chevron Corp yet because that is only just one way of the 4 possible ways to invest in oil. And it traditionally will deliver you the smallest returns on your investment.

The 4 Best ways To Invest In Crude Oil

1) Oil Well Drilling (Domestic United States)

2) Oil and Gas Royalty Interests

3) Mineral Rights

4) Stocks, Mutual Funds or ETF's

Why Global Tensions Are 'Good' For Gas and Oil Investments

The price of oil is infamously challenging to forecast. Earthquakes, politics, and, increasingly, speculators can affect oil prices anytime.

Having said that, global tensions will likely send the cost of oil higher for the short term. Oil prices are already over $100 a barrel, for a gain of just about $10 over seven days.

Iran's first vice-president warned that the flow of crude oil will cease from the important Strait of Hormuz in the Gulf if foreign sanctions are enforced on its oil exports. This chaos how to invest in oil and gas stock is keeping the oil market on edge.

"Anything that happens that could lead to the closure of the (shipping lane) would be extremely bullish for oil," said Peter Beutel, president of Cameron Hanover, a consulting firm that focuses on energy risk management.

The latest bombings in Iraq, in the mean time, are increasing fears about security after the United States military services have withdrew.

"There's no reassurance that something crazy won't happen there that sends... oil up to $150 or $200 a barrel," said Mike Breard, an energy professional at Hodges Capital Management.

Investors don't need to wade too deeply into commodities to capture such gains.

Abraham Bailin, an ETF analyst at Morningstar, states that although ETF's can generate unwanted tax liabilities.

Scott Pasinski of Domestic Development out of Dallas Texas states, Investing in domestic oil wells is the smart answer, Its actually considered real property (real estate) via laws enacted by congress and the IRS used to stimulate domestic oil production. It not only provides a secure investment environment; it also provides investors a superior 85% to 100% tax write off, along with a documented 25% to 45% returns, annually.

Gas and Oil Prices Relate To The United States Economy

Europe's economic troubles could keep a cap on oil costs. Many euro zone nations are anticipated to slide into recession in 2012. And if one or much more countries abandon the European Union's single currency, the euro, the United States dollar would likely move higher. Either could help mitigate the impact of oil costs for U.S. buyers.

"A stronger dollar means that there will be more money in consumer's pockets," said Quincy Krosby, market strategist at Prudential.

If a more robust dollar softens the influence of oil prices, firms that focus on the U.S. domestic economy like retailers and auto makers ripe for out performance, she stated.

Domestic oil drilling companies, which often be far more immersed within the U.S. domestic market than the huge cap organizations, would likely benefit most from a dollar's climb.

The long Term View Of Investing In Oil and Gas

As the need for oil increases and exploration becomes far more challenging, much more capital will flow into the organization of drilling crude.

"We've found all the easy oil in the world," said Breard, the energy analyst at Hodges Capital Management. This is the dominant reason new technologies; such as fracking, horizontal drilling, deep drilling, 3-D/4-D seismic technologies are so critical for oil revitalization.

"Oil revitalization? Yes, oil revitalization", states Scott Pasinski of Domestic Development, "this is the process of rehabbing existing income producing domestic oil wells using superior technological advances and drilling methods. By working closely with our investors, our and veteran management is able to follow a 'franchise-like' formula and uncover the 10% of opportunities that offer extremely high ROI and a secure investment in an otherwise volatile world. We successfully rehab these under-performing and mismanaged opportunities into what we call, 'Superior Investor Grade Opportunities' cause they typically produce passive returns of 30%+".

Drilling and service suppliers have a propensity to benefit from this move to harder-to-get oil than large energy companies like Exxon because of a growing dependence on deep water drilling and fracking -- a process that utilizes high pressured liquids to extract oil from deep rock formations, says David K. Randall from Reuters.

Drilling companies will still to benefit from an industry-wide improvement of rigs, many built 30 or 40 years ago.

"In almost every scenario, limited global supply growth will likely mean higher-for-longer oil prices," over the next five years, said Francisco Blanch, global investment strategist at Bank of American Merrill Lynch.

"Oil is energy and we will always need energy, as well the incredible need for the 6,000+ products we use every day that are made from petroleum products, including everything made of plastics," adds Charley Havens CEO of Domestic Development. "It's a safe place to invest and returns average 25 to 45 percent, which is great for both monthly cash flow and retirement planning. We are also planning to hire about 300 people in the next few months, so when people invest in oil with a self-directed real estate IRA they are also investing in U.S. job growth."