Introduction:With oil prices seemingly heading higher, many novice and experienced investors alike get tempted by the allure of investing in oil. Here are five cautionary reasons not to invest in oil.
Oil can plunge or rise precipitously based off of the news cycle. The death of Osama Bin Laden caused oil to sink $15 a barrel over night. If you can predict the news, you can successfully invest in oil. But lets be serious. It is no better than gambling.
Four leters: OPEC. All the major oil producers are a member of this elite organization that has the power to change prices over night based on the interests of their own host countries. Investing in a monopoly such as this is dangerous because the nature of the beast is fickle.
Both at home and abroad in Western countries, there is an increasing demand for regulating emissions from fossil fuels as well as significant amounts of capital being invested in alternative fuel sources. Put simply, there is way too much politics involved in the oil equation.
What is the true value of oil? Who knows? Because there are so many factors obfuscating the true market price of oil, it is near impossible for the rational value investor to make a sound investment in oil.
Most of the petroleum producing countries are located in the Middle East. As such, the price of oil is tied to the political and economic fortunes of a region known for chaos, dictatorships, and radicalism.
If you are thinking of investing in oil, take these five cautionary notes to heart before doing so. Do your own due diligence on the companies, but ALWAYS make sure you are making educated investments, not Vegas style gambling choices.
select one here...