How to trade oil stocks successfully involves both fundamental and technical analysis. There are the big oil companies and there are companies that explore for oil. There are companies that make the tools for exploration, pumping oil, and for refining. How to trade oil stocks successfully often has to do with picking the most profitable sector of the oil industry. Oil can also be traded as a commodity. In this case the trader is only concerned with the price of oil at a future date and not with how to trade oil stocks in particular. Although by drilling deeper and further offshore oil companies are finding more oil there is a practical limit to how much oil can be produced and at what cost. The Saudi fields are said to be at their limit and will probably be pumping less over the years. On the other hand Russia?s oil fields we said to be played out until an infusion of Western technology revitalized them bringing that nation to the fore as the world?s largest oil producer.
How to trade oil stocks is more than predicting when production will peak. How to trade oil stocks has to do with knowing who has and is developing the technology to successfully tap deep sea reserves and successfully pump oil from the depths. A company with the technology to do so successfully will be a good long term investment. On the other hand, as trading a disaster such as the BP oil spill demonstrated, there is money to be made in short selling or buying puts as well as in long term investing. In fact, how to trade oil stocks successfully is to look for companies whose stock prices tend to fluctuate with, or more than, the price of oil. For example, Canadian and American companies that extract oil for oil shale deposits find their share prices higher when a hurricane is expected in the Gulf of Mexico. Likewise, companies that make the deep sea robots that maintain and repair facilities at great depth find their share prices rising when hurricanes start forming off the coast of South America.
As oil becomes harder to find companies are drilling in less and less politically stable regions of the world. How to trade oil stocks successfully often comes down to understanding the politics and risk involved in drilling for oil in the Third World. The other side of the equation is that deeper oil requires more technology. Buying stock in any of the large number of supporting actors in the oil industry may become more profitable as the need for more high tech increases. Also, the folks who explore for oil, or who contact to the major oil producers are not, typically, the ones who get sued when there is an oil spill. If your interest is short selling ahead of drilling, refining, and oil pumping disasters, then maybe you want to stick with the folks drilling in deep water where hurricanes pass. Where in the world the action will be will be where the hurricanes are and you will be there to trade the situation.
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