How about buying oil as a commodity?

wolfmann601

wolfmann601

Gone, but not forgotton. RIP Ira.
Joined
Mar 12, 2001
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I know very little about investing in commodities. Let me correct that; I know nothing!!!

My neighbor sells and calls me daily telling me I need to invest $5000 ASAP because heating oil, etc is going through the roof and our USA refineries are old and about to break down and he is certain I can and will make a killing.

Sounds too good to be true and since I have no clue how it works:

Is it?????

Thanks, this is important:confused: :confused:
 
The thing is, if oil and its distillates go too high in price, then the demand for those items will dry up and our economy will crater in a hurry. We're not all that far (all time high inflation adjusted is $90 a barrel). If and when we hit $70 per barrel, you will see the brakes absolutely lock up on the economy. Of course I said that about the $60 oil, and here we are, chugging along. But at some point, you KNOW it will start to really hurt us, and the price will correct to reflect the reduced demand. There is also about a $20 per barrel "terror" premium reflected in the price currently, so if the world situation stablizes, or if people just start learning to live with the prospect of terror, then that premium can get knocked out of it. I would look at precious metals before I would oil.
 
But if I bought into oil as a commodity, doesn't the increase in price per barrel benefit me?

I wish I understood how this works [I am certain many here can explain it to me, PLEASE!!!] but I truly have no clue.

I keep getting told by my neighbor that there is no way I can lose money and that commodities are traded in on a very short term basis.

So If I borrowed five grand and gave it to hime, would I be out five grand plus interest when the dust settled next Spring??

Any help will be greatly appreciated!!!
 
What prominent man said that he knew to get out of the stock market right before the Depression when the newspaper boy gave him stock tips?
 
wolfmann601 said:
So If I borrowed five grand and gave it to hime, would I be out five grand plus interest when the dust settled next Spring??
Click to expand...

That is what you should expect. Now, if you just feel like giving him $5000...

Someone who says "there's no way to lose money" is ignorant or lying.
 
The prospect of high returns in the commodities market is a risk premium. The riskier an investment is, the greater the potential returns, and the greater the potential losses. If you are not comfortable with an extreme amount of risk, stay out.

And yes, beware anyone with a "can't lose" proposition.
 
MikeH is exactly correct. Each and every investment should come with a caveat that you may lose it all.
 
A few years back I invested in unleaded gas. $5000 got me 6 or 7 shares. there are two ways to invest 1. to go up in price. 2 to go down in price. The shares also have an experation date. You have to unload them before they expire. If your broker can get a good price. Your broker also gets paid everytime you buy or sell your shares. I think my fee was $200 a share. I don't know the particular's of heating oil, but in gasoline for ever penny gas goes up I made $420, times the number of shares 420x6=$2520. You also have to be around a computer or tv to follow news stories about about oil investments. A lot of things affect the oil market. refinery mishaps, warm winters, fires, the Arabs increasing or decreasing their oil output. If you can afford to part $5000 and have time to sit in front of a computer most of the day and night then give it a try. If you get good at it you can get your initial investment back and play with your winnings. Good luck
Bill :)
 
It might be worth a try if you have money you can afford to loose. I agree that high oil price will stall the economy in the long run, but in the short term, every time there's a refinery fire, hurricane or securiuty issues the price will shoot up.

The other thing to think about and ask about, is it's so sure a thing, wouldn't everyone in america trying to get in on oil futures? Speculation on futures will drive the future price up as well even if there are no other demand/supply changes.

The real question to ask is can you accurately guess when to get out with substantial profit? And you'll probably have to pay captal gains tax as well, and income tax. ( I ain't a tax person)
 
Thanks for the info guys!!!

The info here has proven to be very important to me. While there appears to be the prospect for a nice return, I cannot afford the risk. I would have to borrow the five grand and if I lost it all.........................................................................
 
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