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Should You Invest or Trade in Oil Stocks 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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Oil prices have pulled back since peaking last month. Brent crude rose to trade at around $70.00 per barrel while the light crude traded at about $68.00. They have both fallen to settle at around $66.00 and $62.00, respectively. However, the most evident feature is the level of volatility that oil prices have experienced since the start of 2021. 

The price of Brent Crude oil has been extremely volatile since the turn of the year amid the pandemic.

Brent traded well below the $60.00 level in February before rising to top the $70.00 level in mid-March. It then slipped rapidly to trade below $61.00 before mounting a recovery to $68.00. 

On the other hand, Light Crude oil peaked to trade at $68 in early March before plunging below $58.00 two weeks later. It then rallied to top $64.00 before making the latest pullback.

The price of Light Crude oil has been equally volatile over the last few months.

This makes intermediate investments in oil stocks a bit tricky as compared to the long-term. From the perspective of intermediate investments, it would be difficult to predict where oil prices will be within the next 6-12 months. However, looking at things with a long-term view, it is clear that prices will likely be higher once the world overcomes the challenges created by the covid-19 pandemic. 

Trade the market?

Nonetheless, for those that are reluctant to take the long-term view, they can also opt to trade oil-related products including oil stocks on leading day trading platforms. Some of the world’s biggest oil and gas stocks like British Petroleum Plc (BP), Royal Dutch Shell (RDS), and others can be found on these platforms which allow traders to buy and sell oil stocks within a short period of time. 

Some of these platforms like Axi formerly AxiTrader come with features that allow investors to trade the upswings and downswings of stock prices without incurring high trading fees. But there are challenges associated with margin trading. When you margin-trade oil stocks via CFDs, the risk of loss can be greater than what you have committed to invest. This is one of the reasons why some markets like the US still do not allow trading stocks via CFDs. So, some would ask is AxiTrader legit in countries where CFD trading is not allowed? Not in the US, at least, but more can be found in the linked article.

Since the turn of the year, the stock of BP Plc has oscillated between $20.00 and $25.00 per share, which implies a volatility rate of about 20%. On the other hand, the stock price of Royal Dutch Shell oscillated between $14.56 and $18.64 implying a volatility rate of about 25%. The stock prices of the two companies appear to be gaining some stability in recent trading sessions but it remains to be seen how long this will last.

Therefore, it is not clear yet whether investing with a view to cash out before the end of the year would yield profits as compared to investing long-term for 1-3 years. But for investors from countries where CFDs trading is allowed, there are more options to explore the oil market in the short term.

Conclusion

In summary, the oil and gas market is still one of the most exciting places to invest in. The recent surge in oil prices to $70.00 for Brent crude and $68.00 for Light crude indicates that there is still a possibility that the price of “black gold” could rise closer to its multi-year highs in the coming years. 

The coronavirus pandemic continues to play a crucial role by limiting demand while production cuts continue to compensate. The OPEC+ member countries will be meeting this week to determine whether to continue with the cuts amid the successful deployment of the covid vaccine. This could disrupt oil prices momentarily going into May.

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Thank Nick for the Post!
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