How to Invest in Oil Companies

There are many ways for an investor to take advantage of oil’s rising prices.  Buying stocks or exchange traded funds are two of the most traditional ways for investors to get involved in this segment of the commodities market.  Besides stocks, there are also related industries that do well when oil is in high demand.

• Invest in oil company stocks that have a healthy cash flow.  An oil company with a healthy cash flow can pay investors a regular dividend.  Large oil companies are generally the ones that have well-established cash flows that most investors look for when investing in oil stocks. 


• Invest in oil company stocks that drill in stable regions.  If an oil company has claims to oil reserves in politically unstable regions of the world, that could be a red flag to prevent a prudent investor from sinking money into that company’s stock.  A recent example was when Hugo Chavez kicked Western oil companies out of Venezuela in 2006 in favor of national oil companies from Iran and China.  This hurt Western oil companies like Chevron.


• Invest in an ETF for oil.  An ETF generally tracks the price of its underlying asset (in this case, oil prices) while offering the advantage of being a liquid asset.  There are many oil ETFs to choose from, differing in factors such as volatility and price.


• Invest in industries related to oil.  Companies that provide oil drilling services, refinery services as well as tankers for oil storage and transportation stand to benefit when oil is in demand.  This makes them attractive investments for people interested in investing in oil.