Do The Current Rising Gas Prices Offer Investment Opportunities And How Would One Get Into It
You will likely pay more at the fuel pump today than you paid in January of last year, an unsurprising situation for anyone that has been keeping tabs on the oil industry. There are numerous reasons why gas prices are going up, and one has to do with the fact major players in the oil industry are pushing up prices to recover some losses from the drastic drop in oil prices in 2020.
The year 2021 kicked off with a lot of recovery in many industries after a severely disrupted market period in the previous year, due to the coronavirus pandemic and declining oil prices. Lockdown measures and banned travel meant that many people spent their time at home, and thus, the demand for gas was low. However, this year kicked off with people back on the roads, and oil producers keen on taking advantage by hiking crude oil prices, resulting in higher fuel prices. The key point to note is that demand has yet to recover to pre-COVID levels.
Canada’s carbon tax
The aggressive push for fewer carbon emissions and environmentally friendly energy promotes a shift towards renewable energies and strict measures against carbon emissions. For example, Canada’s judicial system recently upheld a carbon tax introduced by the country’s Prime Minister Justine Trudeau. This is a key factor to consider because Canada is one of the largest oil producers globally, and it contributes to 48% of crude oil imports in the U.S.
The carbon tax facilitated an increase in crude oil price and that price increase contributes to higher gas and diesel prices. The carbon tax is expected to raise gasoline prices to 9.9 cents per liter and diesel prices at 12 cents per liter. This means that filling up a minivan will cost an extra $7. While this increase may put many at a disadvantage, savvy investors view it as an opportunity to potentially make money from the escalating gas prices.
How to benefit from the gas price hike
There are multiple ways in which one could benefit from increasing gas prices. Let’s explore some of these methods.
Imagine owning a petrol station through which you sell petrol and diesel. People who own petrol stations are currently among the biggest beneficiaries, especially if they purchased bulk fuel when it was cheap. They are able to make more money, now that prices are going up, which means higher profit margins. Unfortunately, this method might be limited to those that already own petrol stations. Investing in one takes a lot of money and time, which may not be ideal because of the energy industry’s uncertainties. The benefits available right now may not be available in the next few years.
Invest in companies that own fuel networks
Since owning a petrol station might not be feasible due to the initial capital required and the amount of time it would take to get started, it makes more sense to invest in companies that already own such networks. Some of the best fuel brands to invest in include Chevron, Shell, Mobil, BP, and mothers. The reason to invest in these brands is that the fuel surges will increase their profits and boost their stock price and dividends. Investing the money that one would have invested in building a fuel station will allow you to earn a handsome profit.
You should also invest in some of these brands because some have already formulated plans for their transition into renewable energy. EVs are expected to be the future of mobility, and the transition is already gaining traction. Investing in companies like shell means you can continue to make money from your investment even after the transition.
BP acquired a British EV charging company called Chargemaster as part of its plan to own an EV charging network. Shell also demonstrated its commitment to charging networks through Shell Ventures. These are a few of the many fuel brands that plan to go electric, thus opening up new ways of investing in green energy.
You can invest in crude oil thanks to the commodities market, and the beauty is that it can be done through online brokers. Gasoline and diesel are derived from oil, which is why crude oil price increments influence oil prices. The current sentiments for West Texas Intermediate Crude (WTI) suggest that prices will continue to gain, which means that there is an opportunity to make money by investing in WTI oil.
Invest in oil-producing companies
Oil producing companies still have a few decades of producing oil before the full transition to alternative energy sources, meaning there is still some room to make money as oil prices go up. There are many oil producing companies to invest in, which are publicly listed. Some of those companies include BP, EOG Resources, Suncor Energy, and Chevron Corp, among others.
The current increase in gas prices reflects the improving oil prices, which means that investing in oil companies may allow you to take advantage of the rising prices. However, a good analysis is important to determine which company is best positioned to provide the best growth opportunities because it allows investors to determine the best investment opportunities at minimal risk.
It is not clear how long the surge in oil prices will last, but there is likely a significant upside, especially since cartels are determined to recover from their woes last year. However, investors should also be careful about their fossil fuel industry investments, considering that the industry’s fate has been sealed. The world is rapidly adopting EVs, which could spell doom for oil demand, which will subsequently spell doom for oil prices. In the meantime, the ongoing fuel price increases present short-term opportunities that can leverage to make potentially significant gains.