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Should I invest in oil?

24/01/2023

The subject of oil is a contentious one. While it remains one of the top natural resources globally, there’s a vast amount of pressure on world economies to swap fossil fuels for renewable energy – and a great deal of animosity towards oil companies who are making large profits while hiking consumer prices. 

For ethical investors, oil may not be the most suitable choice. However, from a profitability point of view, is it worth investing in oil?

 

The potential to reap rewards

Oil prices fluctuate widely based on supply and demand. As such, they can be extremely volatile, with the potential to rise and fall rapidly based on market and economic conditions. 

Currently, demand for oil remains high across the globe – meaning that investors may be able to benefit from huge oil company profits. Many investors have benefitted from high shareholder dividends over the years: Shell, for example, hadn’t reduced its annual dividends at all before COVID-19 hit. 

There are many ways to invest in oil: shares, ETFs, options and futures, to name but a few. Each comes with its own pros and cons – but with the levels of volatility (and therefore risk) involved and the complexity of the market, many industry experts suggest that oil may be better suited to more experienced investors. 

 

What impact will net zero targets have? 

Oil may be a major natural resource, but that could well be set to change. Much of the developed world has committed to a target of net zero carbon emissions by 2050 – and, according to some experts, that target could actually be reached by the early 2040s with the right government policies in place. 

Of course, this is fantastic news for the planet. But where does it leave investors? 

Currently, the oil industry is booming: in early November it was announced that the five biggest global oil and gas companies had made a combined $170bn profit in 2022 – making them “one of the most attractive investments in the global market”. 

For now, it seems that oil will continue to be a popular investment. However, remember: oil is a volatile market that may be best-suited to investors who are experienced, who are not solely focused on ethical investing, and who are not averse to high levels of risk. 

 

“Stable Rise Limited is not authorised or registered by the Financial Conduct Authority. The marketing materials are not intended to provide financial advice nor promote any individual financial products.”

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