Advertisement
Online Test Banks
Score higher
See Online Test Banks
eLearning
Learning anything is easy
Browse Online Courses
Mobile Apps
Learning on the go
Explore Mobile Apps
Dummies Store
Shop for books and more
Start Shopping

How to Avoid the Risk of Investing in Oil Commodities

As with most aspects of commodities, tanker spot rates and fixed rates, which provide the bulk of a shipping company’s revenue stream, are highly cyclical. It’s not extraordinary for shipping rates to fluctuate by 60 or 70 percent on a daily basis.

image0.jpg

So how do you protect yourself from these extreme price volatilities? One way to hedge your positions is to invest in one of the large oil tanker stocks. These companies have been in the business a long time and have substantial experience managing these wild price swings.

Another factor to consider is global economic growth. The oil-shipping industry depends on a strong global economy with a healthy appetite for crude oil and crude oil products. If the global economy is thrown into a recession, you can expect the tanker stocks to take a hit. With everything else equal, if the world demand for oil products slows down, you should get out of these tanker stocks.

If you’re a more adventurous investor, you always have the option to short the stock of companies you know aren’t going to do well. You can short a company’s stock through various means, such as buying a put option or even selling a call option.

To find out more about the oil-shipping industry, check out Martin Stopford’s excellent book on the subject, Maritime Economics (Routledge).

blog comments powered by Disqus
Advertisement
Advertisement

Inside Dummies.com

Dummies.com Sweepstakes

Win an iPad Mini. Enter to win now!