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How Oil Price Influence Investment Markets?

2020 Mar 14

After Saudi and Russia decisions to increase supply oil has smashed to the unseen levels. But, what's next? 


Everything revolves around oil and it's inevitable that the fluctuations in the oil industry will affect investment markets, as well. Oil is an investment in itself and it is a stable type of investment that promises great returns.


Investors may choose to invest in the oil companies themselves. It's just like investing in stocks, except the stakes are higher because there are more factors involved. Financial experts have observed that factors, such as politics or even the weather, could influence the trends in the oil investment markets. For example, if a war happens and some of the biggest oil-producing countries are involved, the oil exploration companies will be adversely affected because such circumstances will make it more difficult for them to do business as usual. In consequence, this will lower the price of their stocks and drive down the global markets.


Some investors, especially those who are just starting out with investing, are highly encouraged to invest in oil exchange traded funds (ETF's). ETF's are like mutual funds, which are investments in public companies, instead of private corporations. They are more general in application since the investments are spread out over the industry in general, instead of being concentrated on a particular corporation. In a sense, ETF's are much safer than investing in individual corporate stocks, since they're not as affected by the extraneous factors that cause trouble for corporate stocks. For one, they are not affected by the political climate of an oil-producing country, which is something that oil companies cannot get away from.


In general, whether or not one invests in the oil industry, it's almost impossible to avoid the effects of the oil industry on the global financial markets. Oil affects every commodity on the market because it's a scarce and necessary resource. Everybody needs it and almost every country in the world imports it. That means that when the price per barrel of oil goes up, the price of stocks go down because companies need more capital to buy more oil and they cannot afford to pay investors while they are still reserving their funds for their fuel needs. 


Despite the risks of investing in the oil industry, it's still considered one of the best investments for beginners.

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