Fewer investors than in years past are investing in oil right now since oil prices have plummeted 41.8% since June. But oil has rebounded 11.4% in the last month. The S&P Crude Oil Index – which dropped 42% in the last year – saw a single-day gain of 2.5% yesterday (Wednesday).
According to Money Morning Global Energy Strategist Dr. Kent Moors, prices will recover in the long term. He expects them to be in the $60 to $73 range by mid-July.
This means not investing in oil will cut you off from profits.
Many investors think a popular oil exchange-traded fund is the best way to invest in oil, but that's only a small part of the story.
For anyone who wants to get a piece of this price rebound, here are two different ways to begin investing in oil as it moves higher in 2015…
Investing in Oil Method No. 1: Futures
The most direct method of investing in oil is purchasing futures.
An oil future is a contract obligating the buyer to purchase a specific quantity of oil at a future date and price. Oil futures are grounded in speculation due to sellers predicting oil prices months in advance.
Oil futures for June 2015 delivery trade near $58 as of April 29. Say, for example, that oil is available for $63 in a futures contract dated to come due in June 2016. A speculator who thinks the price will zoom past that to $73 by June 2016 can buy the contract at $63.
If the speculator is correct and the price hits $73, he/she can buy oil at $63 and sell it for a $10 profit. If oil falls short of $63, the contract is worthless – and all the speculator did was guarantee he/she would buy oil for $63 down the road.
It's clear that investing in oil futures has no shortage of risk. They're volatile because they're heavily influenced by other traders.