Buying Oil Investments – Chapter 8: The Risks Of Investing In The Oil & Gas Industry

This is chapter number 8 out of 12. Read the rest:

Read Buying Oil Investments – Chapter 1: Introduction
Read Buying Oil Investments – Chapter 2: Getting started in oil investments
Read Buying Oil Investments – Chapter 3: Factors which affect the price of oil
Read Buying Oil Investments – Chapter 4: The determinants of Oil Prices
Read Buying Oil Investments – Chapter 5: Trading in Oil Futures: (The impetus of the market sentiment)
Read Buying Oil Investments – Chapter 6: Investment Options
Read Buying Oil Investments – Chapter 7: Exchange Traded Funds

Price & Supply Uncertainties:

The Oil & Gas industry have some risks which are associated with its supply. There are several grades of oil which are supplied to the oil market like the West Texas Intermediate, North Sea Brent Crude, Sweet crude and Sour crude. Due to the fact that sour crude is harder to refine and process, sweet crude is more in demand. The main problem lies in the fact that the market faces a shortage of high quality sweet crude needed to meet the stringent US environmental requirements. As such, the US needs to import most of this type of oil from Angola and Nigeria than from the Middle East. With supplies for such a critical commodity dependent on a political unstable region, prices uncertainties are bound to be an ongoing concern.

Risk of a “Dry Hole”:

While prospecting for new oil reserves is a very lucrative endeavor, investors risk losing 100% of their investments if they come up with a dry hole.

Volatility Prices:

The returns on investments in the Oil & Gas industry are dependent upon the market price of crude oil and natural gas. As there are many factors which can affect the price of oil and its derivatives, this makes the price of oil susceptible to price fluctuations. When such a case occurs, this reduces the profitability of an Oil & Gas project.

Scams & Bad Management:

Since investments in the Oil & Gas industry requires a large amount of capital and a high level of technical expertise, it not uncommon for scams to perpetuate in this industry. Thus it is important that investors fully comprehend what they are going to invest in.

Read Buying Oil Investments – Chapter 9: Advantages Of Investment In The Oil & Gas Industry
Read Buying Oil Investments – Chapter 10: Investments in Gold versus Oil
Read Buying Oil Investments – Chapter 11: Peak Oil
Read Buying Oil Investments – Chapter 12: Conclusion