As the world wrestles with an ongoing economic recession fueled by the coronavirus pandemic, oil has become the new gold. Rising levels of geopolitical turmoil and a deep downturn in global demand has driven the price of oil lower and lower, leading many investors to look towards oil as a safe haven asset.
The combination of vast market fluctuations and the endless waves of bad news crashing across the financial markets in the wake of the pandemic have pushed oil prices to their lowest point since early 2016, creating a buyer’s paradise. Experienced investors understand that, as counterintuitive as it may be, this is often a great time to invest in oil, or any commodity or asset for that matter, when everyone else is running for cover.
The famous investor Baron Rothschild is said to have uttered the famous phrase, “buy when there’s blood in the streets”. As the global economy reels from the catastrophe that is 2020, the quote rings true when it comes to investing in oil. Many major oil producers — from OPEC nations and Russia to shale drillers in the US — are struggling with plunging prices, weak demand, and plentiful supply. These companies are in desperate need of cash infusions, and investors can cash in on the misery of others by buying up snatched up assets for pennies on the dollar.
In addition, investors may find that oil proves to be a smart hedge against inflation in the near future. As governments have begun printing money to pay for bailouts and other forms of pandemic relief, the global economy risks major inflation in the coming years. In an inflationary environment, the performance of oil stocks and commodities may be significantly boosted, and any investments now could pay dividends later.
Of course, any savvy investor knows that investing in oil comes with its own unique risks. There are no guarantees with the volatile and unpredictable oil industry, and one must research thoroughly before taking the plunge into any investment. However, in the current market conditions, oil is the new gold, and a well-timed investment may prove to be profitable in the long run.