Gas has been a reliable source of energy since the mid-19th century and currently makes up a significant percentage of the UK’s annual energy production. As a result of its availability and necessity, it has become a mainstream commodity on the investment market.
Like many commodities, the natural gas market has also been impacted by the coronavirus pandemic, with wholesale gas prices falling as a result of a huge drop in demand. While gas market prices were declining before the crisis, the pandemic has accelerated this fall.
This guide discusses the four main ways that you can invest in gas, as well as any risks that may come with those options.
If you’re considering investing in gasoline or petrol, you’ll want to look at how you can invest in crude oil, which is the commodity used to produce the fuel used in cars and other vehicles.
Exchange-traded funds (ETFs) are a way of investing your money in a selection of assets rather than buying shares in a couple of specific companies. You can find out more about ETFs here.
ETFs are fairly simple and accessible, and trading them works in a similar way to regular stocks. As well as being relatively straightforward, ETFs are also seen as less risky. By investing in a basket of assets you leave yourself less vulnerable to the fluctuations of the market.
If you are new to the world of investment then ETFs may be the best choice for you. Gas is an incredibly popular commodity, with a range of companies and ETFs to choose from.
The world’s three largest natural gas ETFs at the moment are:
Futures are a direct but risky investment that are subject to both the fluctuations of the market and the knowledge of the buyer. A high-risk, high-reward system, newcomers may want to gain some experience in the field before purchasing futures.
Futures, as the name suggests, are a way of buying gas at a later date at an agreed price. Depending on market movements you may end up making a solid return on your investment, or just as easily losing money.
Stocks are one of the more conventional ways to invest in a commodity. Gas is a popular investment and a necessary form of energy for many households around the world, so there are multiple gas-producing companies to choose from: ranging from Chevron to BP to Shell. Stocks are simple to buy through brokers and advisors, but the decision on what shares to buy is up to you!
Buying stocks takes some knowledge of the market and its fluctuations, but this can be safer than investing in futures as you buy stock at the current price that is displayed. However, ETFs may still be a safer option as you aren’t relying on the performance of just one or two companies.
It is also possible to buy stocks in Master Limited Partnerships (MLPs). These are structured to offer certain tax advantages that mean profits are only taxed when they are distributed to the general and limited partners of a company. This type of set-up is appealing to some investors, as MLP returns are not taxed in the same way as dividend-paying shares.
MLPs also tend to be seen as a lower risk, but longer term, investment option. There are some risks that come with MLPs however, including demand, market volatility and the fluctuation of prices, as well as new legislation, environmental disasters/hazards and political and social shifts.
The world relies on gas for energy, and its abundance makes it quite a reliable commodity on the stock market. However, the market is never completely safe, and gas is no exception:
All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.
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