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  • Entrepreneurs

    Buying Crude oil

    I have a nephew who works in the oil and gas industry. We have had a discussion concerning the oil price and if it was worth buying some. He is very well educated and predicted the price fall. his opinion is it will bottom out at around $45 a barrel. He thinks the price will be up above the $90 a barrel by the end of next year. If he is right that's a good profit. Does anyone else have an opinion? Does anyone else know how I can buy or invest in oil?
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    [Image: New-logo2.png] Manchester based investor. I buy, sell, renovate and rent investment property in East/North Manchester Wink email: mike@brentwoodinvestments.co.uk Call: 0161 681 3724

    I think you can "buy" oil on Forex exchange.

    Except - I read today that someone high up In Suadi Govt, they said that "The days of $100 a barrel is gone forever". I would take the "forever" with a pinch of salt, but I can imagine they are going to be keeping the price down by over-producing for a while

    They are doing this to take Russia's market share. To kill the economies of "fracking" in the USA and perhaps fight the green lobby.

    They are reliant on the stuff and we (due to cost) are looking elsewhere.

    Is it OPEC that decides how much to produce?

    Anyway - im no oil expert so dont listen to me but I did have similar thoughts on investing, looking further into it. Theirs too much going on!
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    I think your Nephew will be spot on, there is no way we are in for cheap oil in the long term, but you need to find out what the Hedge Funds are doing as they were betting on this fall last June, and will have the best information about this to enable a better decision.

    I'm interested in betting on exactly what your Nephew suggests, but not sure how to go about it.
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    I understand that fracking has a lot to do with it. He says fracking is not profitable unless oil is selling for at least $70. OPEC are still not cutting back on production as they want to ensure they don't loose market share to fracking. The Arabs have billions to fall back on and will keep drilling for as long as it takes to ensure they secure there market.
    I am not sure on how to invest in this but was hoping someone could inform me.
    My nephew by the way works for one of the biggest on line recruitment agencies for oil and gas
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    [Image: New-logo2.png] Manchester based investor. I buy, sell, renovate and rent investment property in East/North Manchester Wink email: mike@brentwoodinvestments.co.uk Call: 0161 681 3724

    (12-01-2015 11:09 PM)Michael_Brown Wrote:  I understand that fracking has a lot to do with it. He says fracking is not profitable unless oil is selling for at least $70. OPEC are still not cutting back on production as they want to ensure they don't loose market share to fracking. The Arabs have billions to fall back on and will keep drilling for as long as it takes to ensure they secure there market.

    Most recent press coverage has framed this issue in terms of oil market economics, and looked to blame Saudi/OPEC for seeking to drive prices below the cost of US shale producers. While this is partially true, it is rather simplistic and does not address the wider geopolitical issues.

    A lot of these issues centre on the Middle East. There is a good write-up from last month by Reuters. Simply put, two of the Saudi's biggest enemies, Russia and Iran, are also US enemies, and dependent on the price of oil for their economies/governments and supporting the regime in Syria.

    Separately, Europe is struggling and close to deflation, Japan is weak and printing money like mad, China is slowing and cutting back on excessive local debt accumulation so the demand for oil is falling while supply is increasing. The US has a relatively strong economy right now, and may have taken the view that a short-term domestic hit on the shale-oil industry is an acceptable price in terms of foreign policy objectives. Saudi appears to be aligned, and willing to fall back on their large reserves of capital in the meantime.

    Also, there is political capital to be made from falling oil prices and lower prices at the pumps.

    Most movement in the markets in the near future will be due to speculation, and companies repositioning their previous/current hedges on the oil price to limit their exposure/risk.

    For me, the key issue here is how this pressure impacts Iran, Russia (and, to an extent, Venezuela) and how that plays out. Once that becomes clear I expect the price of oil to increase, but to below US$100 which will allow efficient US shale producers to operate, but not to take too large a market share.
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    You can invest in ETF's (electronic traded funds) in gold, so you should be able to get ETF'S in oil, ie Brent crude etc, though you are buying in $, so not only is it a play on the markets in crude oil but also a currency play which could catch you out.

    Meant exchange traded funds * bloody predictive txt
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    You can buy oil via futures or contract-for-difference (CFDs).

    However, these are classed as high risk, complex financial instruments.

    Personally, I view this as no more than glorified gambling and would advise against it unless you are fully informed of the risks and are prepared to throw that money away.

    Even then, I'd still be wary. More info here on Wikipedia - Contract for difference
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