Should You Trade In Oil Stocks during the COVID-19 Pandemic?
The Oil industry is one of the most lucrative industries in the world. It wouldn’t be wrong to say that the global economy revolves around the oil industry. However, what used to be the most lucrative industry with high prices has now plummeted below $0 per barrel after the demand for crude oil decreased during the global pandemic.
How Did The Prices Go Below $0/Barrel?
The US Oil Fund is considered as one of the largest players in the oil industry. The wager on basement level crude oil through the US Oil Fund played a big role in getting the price per barrel below zero. Now, this has caused a lot of problems not just for oil companies but for many governments as well. Oil stocks are different than company shares. They don’t have infinite terms. You have to encash them before a specific date otherwise you will have to take the oil according to your amount of oil stock.
Another concern is regarding oil futures. The US Oil Fund holds massive oil futures and these transactions may come back to haunt the world again. Experts believe that this will once again cause the price to plummet below zero. The US Oil Fund is trying its best to cope with the current market situation but, their efforts are continually backfiring. The fund will not purchase any new future contracts. This will again add a lot of pressure to decreasing oil prices even further.
The US Oil Fund isn’t the only ETF that is affected by plummeting oil prices. All other ETFs are also going through a similar fate. Some have even told their investors that because of the plummeting prices and uncertainty due to the pandemic, the investors might not even get any of the money back.
With Oil Prices Lowered! Should You Invest In Oil Stock
Well, a simple answer to that question is NO! With prices going even below zero per barrel, talks about investing in oil stock has started gaining a lot of importance. Many new investors think that it is their opportunity to hit a jackpot whereas large companies are all very wary of it. Mega oil companies are taking a bad hit during this time but they are confident that the market will see a rise however with limited time of oil stocks, investing right now wouldn’t yield great results. It will actually offer you a negative yield for your investment. As discussed earlier, it is expected that there would be another decline in the oil prices in the coming months. So it’s better to wait till the end of the pandemic.
The ideal time to invest in oil stock and oil futures would be when the pandemic shows some signs of slowing down. The market will only get stable once the pandemic is over. So investing right at the end would give you a good cushion for investment.