The Beginner's Guide to Investing in Oil

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.

Trading oil futures is too risky for many investors. If you're one of them, check out this safer way of investing in oil today…