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As the year commences, investors are learning themselves in a situation they didn't foresee. The U.S. overall economy looks like it's growing more than what most experts envisioned.

how to invest in oil companies

It is difficult to say whether that expansion will continue to accelerate this current year. However signals that the economy may very well be improving have raised oil prices already. That's partly because energy firms often lead the way during expansions as more trucks packed with goods clog the roads and more workers refill their gas tanks on the way to their job.

But don't go out and acquire giant energy company shares, ETF's or mutual funds from the likes of Exxon Mobil Corp or Chevron Corp yet simply because that is only one way of the 4 possiblity to invest in oil drilling. And it usually will deliver investors the smallest profits on your investment.

how to invest in oil companies

The 4 Best ways To Invest In Oil Drilling

1) Oil Well Drilling (Domestic United States)

2) Oil and Gas Royalty Interests

3) Mineral Rights

4) Stocks, Mutual Funds or ETF's

Why Global Tensions Are 'Good' For Oil & Gas Investments

The price of oil is infamously challenging to predict. Earthquakes, politics, and, increasingly, speculators can impact oil prices unexpectedly.

That said, global concerns will likely send the price of oil higher in the short term. Oil prices are already over $100 a barrel, for a gain of almost $10 over a single week.

Iran's first vice-president warned that the passage of oil will be stopped from the important Strait of Hormuz in the Gulf if foreign sanctions are made on its oil exports. This chaos is keeping the oil market on edge.

"Anything that happens that could lead to the closure of the (shipping lane) would be extremely bullish for oil," said Peter Beutel, president of Cameron Hanover, a consulting firm that is focused on energy risk management.

Recent bombings in Iraq, in the mean time, are increasing concerns about security after the United States military services have withdrew.

"There's no reassurance that something crazy won't happen there that sends... oil up to $150 or $200 a barrel," said Mike Breard, an energy analyst at Hodges Capital Management.

Investors don't need to go too deeply into commodities to capture such gains.

Abraham Bailin, an ETF analyst at Morningstar, states that although ETF's can generate unwanted tax liabilities.

Scott Pasinski of Domestic Development out of Dallas Texas states, “Investing in domestic oil wells is the smart answer, It’s actually considered real property (real estate) via laws enacted by congress and the IRS used to stimulate domestic oil production. It not only provides a secure investment environment; it also provides investors a superior 85% to 100% tax write off, along with a documented 25% to 45% returns, annually.”

Gas and Oil Prices Relate To The U.S. Economy

Europe's financial issues could keep a cap on oil costs. A number of euro zone countries are predicted to slide into economic downturn in 2012. And if 1 or more nations abandon the European Union's single currency, the euro, the United States dollar would most likely move greater. Either could cushion the impact of oil costs for U.S. buyers.

"A stronger dollar means that there will be more money in consumer's pockets," said Quincy Krosby, market strategist at Prudential.

If a stronger dollar softens the influence of oil costs, organizations that concentrate on the U.S. domestic economic climate like retailers and automobile makers ripe for outperformance, she stated.

Domestic oil drilling companies, which often be much more immersed inside the U.S. domestic market than the big cap companies, would likely benefit most from a dollar's climb.

The long Term View Of Investing In Oil and Gas

As the need for oil increases and exploration becomes far more hard, far more investment dollars will flow into the company of extracting crude.

"We've found all the easy oil in the world," said Breard, the energy analyst at Hodges Capital Management. This is the dominant reason new technologies; such as fracking, horizontal drilling, deep drilling, 3-D/4-D seismic technologies are so essential for oil revitalization.

"Oil revitalization? Yes, oil revitalization", states Scott Pasinski of Domestic Development, "this is the process of rehabbing existing income producing domestic oil wells using superior technological advances and drilling methods. By working closely with our investors, our and veteran management is able to follow a 'franchise-like' formula and uncover the 10% of opportunities that offer extremely high ROI and a secure investment in an otherwise volatile world. We successfully rehab these under-performing and mismanaged opportunities into what we call, 'Superior Investor Grade Opportunities' cause they typically produce passive returns of 30% ".

Drilling and service companies are more inclined to benefit from this move to harder-to-get oil than large energy companies like Exxon because of an ever-increasing dependancy on deepwater drilling and fracking -- an operation that uses high pressured liquids to extract oil from deep rock formations, says David K. Randall from Reuters.

Drilling companies will still to benefit from an industry-wide update of rigs, many produced 30 or 40 years ago.

"In almost every scenario, limited global supply growth will likely mean higher-for-longer oil prices," over the next five years, said Francisco Blanch, global investment strategist at Bank of American Merrill Lynch.

"Oil is energy and we will always need energy, as well the incredible need for the 6,000 products we use every day that are made from petroleum products, including everything made of plastics," adds Charley Havens CEO of Domestic Development. "It's a safe place to invest and returns average 25 to 45 percent, which is great for both monthly cash flow and retirement planning. We are also planning to hire about 300 people in the next few months, so when people invest in oil with a self-directed real estate IRA they are also investing in U.S. job growth."

how to invest in oil