Advantages and disadvantages of investing in oil and gas industry

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Oil and gas are commodities that are always in demand. These resources are always needed regardless of a country’s economical condition. Petroleum has a multitude of uses in the petro-chemical industry. The other uses of petroleum are as transportation fuels, fuel oil for heating and lighting, asphalt and road oil, lubricants and feedstock for making the plastic and other synthetic material. On the other hand natural gas is a source of heating and cooking energy. However, investing in the oil and gas industry is a risky business which requires careful planning and strategizing.

It is recommended to seek advice from an oil and gas investment consultancy firm while investing. JBH Consulting Group is an oil and gas investment consulting firm based out of Liberty, Missouri which operates numerous oil and gas wells in Kansas. The oil and gas ventures of theJBH Consulting Groupin Kansas are located across Hodgeman County, Ness County, Scott County, and Rooks County etc.  A number of retail investors in the United States are now investing in oil and gas industry to diversify their portfolios. As these investments are high-risk, high-reward ventures you should definitely take expert advice of an oil and gas investment consultancy firm.

Additionally, you should be aware of the advantages and the risks associated in the business.

Pros

  • Diversification: Historically, oil and gas investments have provided a useful diversifier against the overall economy. The economy of a country tend to slow when the prices of gas gets higher. Your stocks and funds stumble could because of this. But with the rising of oil and gas prices, oil and gas stocks start to rise with them. An exposure to oil and gas stocks can help shield your portfolio during economical slowdown that is caused by oil shocks.
  • Profit Potential: As mentioned earlier investment in the oil and gas industry is a high reward venture. If you invest in smaller companies and limited partnership, you could earn huge profit sometimes. If drillers strike oil then a single well can generate multiple times its costs and it can also pay dividends for many years.
  • Tax advantages: Although not a lot of people know about this, there are a few tax advantages to oil and gas investing. The IRS allows companies to deduct for depletion, which is a way of accounting for the gradual exhaustion of oil and gas wells in a given plot of hand. If you buy a membership in a limited partnership then it would be a very crucial consideration.

 The Risks Involved

 Volatility: Losses of more than 50% is not unusual here because oil and gas investments can be subject to extreme price swings. If you make investments in a exploratory drilling projects and the drillers do not strike oil, you could lose a huge amount of money.

Lack of liquidity: Although you will not have any problems selling shares in larger companies, you might not get a buyer for shares of smaller companies.

Commission: When you invest in a limited partnership or closely held corporation, you will have to pay a large amount of money or commission to a broker or intermediary.

Complexity: Investment in oil and gas industry is a complex process. There are specific tax rules regarding oil, gas and mineral investment and you have to be properly aware of them.

Businesses like JBH Consulting Group ensures making the right investment by determining everything well.

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Investment

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