3 Ways to Invest in Oil

3 Ways to Invest in Oil

As recent headlines have proven, oil is an extremely volatile and risky commodity that can generate very attractive yields if played correctly. There are three ways of getting involved with oil:

  1. Purchasing oil futures (whereby the buyer speculates the price in the future) or oil options (whereby the buyer has the option to buy or sell at an agreed price). Both futures and options require substantial research and, usually, large amounts of capital.
  2. Investing in commodity-based oil exchange-traded funds (ETFs) on the stock exchange, whereby one share of a certain oil fund – for example, the U.S. Oil Fund (AMEX:USO) would give you exposure to approximately one barrel of oil.
  3. Buying energy-sector ETFs: such as the iShares Global Energy Sector Index Fund (PSE:IXC) and the lower-yielding yet safer energy-sector mutual funds that invest in the stocks of oil and oil service companies.

A superb example in the past – one we can amorously learn from – is Moore Charitable Foundation founder Louis Bacon’s war with oil.

 

What happened?

1

What waited for the subsequent seven months was the first Gulf War that eventually ended with US intervention.

23One man who benefitted hugely from the dispute, however, was current president of Moore Capital Louis Bacon, who went long on oil and short on stocks – helping his newly found hedge fund earn an 86% return that year.

4

Though already a reputable macro trader, Louis Bacon’s hefty bargain was a result of correctly predicting a geopolitical event that, surprisingly, no other government or political body were able to do at the time.

Who was Louis Bacon?
Born and raised in North Carolina with an MBA from Columbia Business School, Bacon started at Bankers Trust and eventually moved to Walter N. Frank & Co., where he learned the ropes to trading currencies.

Bacon soon took a job as a futures broker at Shearson Lehman Brothers, where he rose to senior vice president with the help of brother and friends trading through his futures desk. In 1989, he launched his company, Moore Capital Management with incredible profit in the first year alone. Three years later, the trader founded Moore Charitable Foundation to support land and water conservation.

At age 56, Bacon has a net worth of $1.6 billion as of September 2014, making him the 383th richest billionaire in the Forbes 400.

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