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As Oil and Gas Prices Bounce Back, How do You Invest Now?

Nick Ferengi's picture
Founder and Editor CAGR Value

Nick is the editor of CAGRValue, a finance blog focused on growth investing, At CAGRValue, we explore the most exciting markets, industries and economies in terms of growth and try to pick out...

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  • Jul 30, 2021 9:01 pm GMT
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Oil and gas prices have bounced back over the last two weeks after a disappointing start in July. The WTI Crude Oil price fell from just under $77 at the start of the month to trade at $65.00 before recovering to the current price of about $74.00 per barrel. 

On the other hand, Natural Gas prices have been rising since April, surging to trade above $4.10 before pulling back slightly to $3.86. Overall, oil and gas prices have made significant gains in recent months as business re-openings continue around the world.

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The demand is rising and OPEC+ agreed to gradually raise production to pre-covid levels, rather than increasing output all at once. Therefore, the oil and gas market is becoming an exciting place to invest in the second half of the year and there are a few ways you could get involved.

Buying oil and gas futures

The commodity futures market is a good place to start. Given the high prices of oil and gas, now could be the best time to invest through the futures markets. The WTI crude oil is currently trading at about $73.77 to $73.96 in the October 2021 futures. 

This means that if you plan to buy 100 barrels of crude oil to be delivered by October 31, then you commit to paying $73.77-$73.96 on that day. By then, oil prices may have increased to $80.00 per barrel or higher as most analysts predict. This creates an opportunity for the buyer to save or make a profit of more than $6.00 per barrel when the contract expires. Therefore, this could be a great opportunity for sophisticated investors to take.

Retail investors can look to the stock market

Retail investors may not have the capital to invest in the highly sophisticated futures market. However, they can target oil trading through the stock market. Due to the rising oil and gas prices, oil stocks have become some of the most active stocks in the market.

The advantage of investing via the stock market is that you have a wide variety of oil and gas companies to choose from. Some have better value propositions than others while others promise growth. You could choose to buy multinational Blue-chip oil and gas stocks like BP plc, Royal Dutch Shell, or Exxon Mobil. OR, you could target smaller drilling stocks like Torchlight Energy, CWC Energy Services, and Northern Offshore.

You could go for passive investing via mutual funds

Despite the exciting prospects of speculating with oil stocks, not every investor wants to take the risks involved in directly trading shares. As such, some investors opt for passive investing via Mutual Funds and Index Funds. Some of the most exciting oil mutual funds to invest in include Vanguard Energy Fund Investor Shares and Fidelity Select Energy Portfolio. 

Vanguard Energy Fund focuses on two primary segments of the energy sectors including integrated oil and gas companies, as well as, companies involved in exploration and production. On the other hand, Fidelity Select Energy focuses on companies involved in energy field activities.

Conclusion

In summary, oil and gas prices are soaring and this creates an opportunity to invest in the second half of the year. And depending on the type of investor you are, there are several options to choose from.

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