With the price of crude oil recently hitting an extended slump, you may be wondering whether there is anything you can do as a business owner to take advantage of these low prices both now and in the future. Indeed, high oil costs can impact a variety of prices-- you'll pay more for gasoline, utilities, and crude-based products (like plastic and tires); your profits may suffer, as residents avoid spending money at your business to help offset their higher gas budget; and your business taxes may even increase to help cover increased public paving costs. Fortunately, there are ways to take advantage of low oil prices that will set your business up for financial success when the price of crude oil inevitably rises. Read on for three ways you can profit from temporarily low oil prices.
Investment in oil stocks
Most U.S.-based and foreign oil and gas exploration, processing, and sale companies have had their stock values suffer over the last several months of turbulent market activity. As the investment tycoon Warren Buffet has said, a wise investor should "be fearful when others are greedy and greedy when others are fearful." While you won't want to place short-term capital needs in a potentially volatile stock fund, you may opt to invest long-term capital (or mortgage existing property if you can easily cover the costs through cash flow) in oil stocks. Having dividends reinvested as the stock prices begin to creep up, and selling the stocks once prices have hit a peak (or continuing to hold them as part of a long-term investment strategy) can help you reap major rewards over a fairly brief investment time frame.
To help manage risk, you may want to avoid putting all your investment funds into a single basket. You may want to purchase several shares each of a number of different oil stocks, rather than a large number of shares of a single stock. To keep transaction fees to a minimum, you could also opt to invest all your funds into an energy-sector index fund that will allow you to purchase "slices" of a wide variety of energy stocks. This can minimize any damage from a single company's bankruptcy or turbulent profit-to-loss ratios while still allowing you to benefit from the growth of the sector as a whole.
Oil and gas exploration partnership
For those with a significant amount of money to invest, an oil and gas exploration partnership could be a lucrative choice. During times of oil oversupply, many exploration companies engage in mass layoffs to help cut costs and keep the business afloat until the market becomes less saturated. This economic tension can provide the perfect buying opportunity for a savvy investor.
If you're planning to go this route, you'll likely want to engage the services of an investment adviser who can help you evaluate the companies or individuals with whom you're interested in forging a partnership. Your adviser will be able to analyze the financials of these businesses to let you know whether your choice will be a wise decision and when you'll begin seeing profits.
If you've needed to repave your asphalt parking lot for years, there's no better time than the off-season during a period of low crude prices. While contractors are frequently booked from spring through the end of summer, often at a higher rate than other times of year, most contractors in temperate climates find themselves temporarily out of work during the winter months. This open availability (and often a need for money) can help you keep labor costs low -- many contractors will accept a much lower rate than their summer rate just to keep their skills active and provide some income during a lean time of year.
You'll also be able to save significantly on material costs. Asphalt is derived from crude compounds, so the lower the cost of crude oil, the lower the cost of asphalt or reclaimed asphalt pavement (RAP). There are a variety of types of "cold mix" asphalt or RAP that can be poured and compressed even during chilly temperatures.