Investment Strategy for Crude Oil

Very Hard Commodities Investment Physical Commodities

As an investment analyst, you are researching physical commodities to provide your clients with insights on risks and potential returns. One of the commodities you are examining is crude oil, which has historically been a significant part of alternative investment portfolios. You are particularly interested in the impact of supply-demand dynamics on crude oil prices.

You recall that the pricing structure can be heavily influenced by various factors, leading to situations such as backwardation and contango. For your analysis, you are considering three different strategies for investing in physical crude oil.

Please evaluate the following investment strategies and select the one that maximizes the potential return while effectively managing risks associated with holding physical crude oil.

Directly purchasing physical barrels of crude oil and storing them to benefit from upward price movements.

Investing in crude oil ETFs that hold futures contracts rather than physical barrels, thus capturing market liquidity and contango benefits.

Entering into long-term contracts with producers of crude oil to lock in prices, minimizing exposure to market volatility.

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