Investments in oil – nothing is really constant

Any market involving calculations, speculations and guesswork becomes unpredictable and inconsistent over time. Even the most lucrative market, the oil industry, has been showing signs of inconsistency over the past few years. Though the oil market is well exposed to investors and well explored by them, there are some facts which they still need to know. Because of these fluctuations, the media has become used to making contradictory statements about this market within a matter of just 24 hours. Therefore, it is an illusion that we know enough or can assume to know everything about the oil industry, as we actuality do not. Can we really ever be certain as to how much oil is being extracted out of earth at any given time? Or how much oil remains left in the ground in the Earth’s most remote regions? The answer is no. Investments in oil are not that transparent.

The fact is that we cannot ever be certain how much it will cost for oil. We cannot always be accurate. Even if we somehow evaluate the price of the oil resources in the marketplace, we cannot be sure that we are right. There can be no scope of forecasts in any case. Investors in the market rate reserve oil as less valuable compared to its “replacement cost.” Basically, it can be said that it is better to invest in the already established oil fields than to start digging up one’s own field. The uncertainties are just too great.

The game is all about approximate calculations and accurate workings, and this amounts to not much more than making wild guesses. Before making investments in oil, one can study and calculate how much it costs to invest in the most successful oil company, for example. Judging what it would take for investments in oil wells belonging established oil companies is an easier task than forecasting the future price of oil. It should be kept in mind that in the game of variables there are no constants.

Investments in oil are not child’s play. After all, the oil market is ripe with variations and fluctuations in price every minute of every day. Investments in oil demand more experience, knowledge and skill from the potential investor. It is a common mistake to think it is easy to figure out prices in this manner, as the customers dominating in any particular market bring so much uncertainty. Other than making investments in oil, there are other natural resources which can potentially yield tremendous returns, such as natural gas resources. These are just some of the challenges and options in the arena of natural resource investing.

By Chris Termeer

Chris Termeer

Chris Termeer is an oil and gas consultant, industry commentator and analyst. His book, Fundamentals of Investing in Oil and Gas provides a comprehensive overview of all aspects of the oil and gas industry, including exploration, drilling, production, storage, transportation and refining, to name but a few.

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