We all remember the $100+/barrel of oil.  It sent gas prices skyrocketing.  People panicked and made huge changes in their lives as a result.  Some drove less, others traded their vehicles for more fuel efficient cars, and a sports fisherman in my hometown sold his boat and basically just quit fishing. 

Oil will most likely hit $100/barrel again.  If we go into hyperinflation it could go much much higher.  So one way to prepare is to invest in oil.  There are different ways to do this and I describe some of them here.

1)  Buy oil company stocks.  Before the big oil price increase I bought some oil company stocks and have done extremely well with them.  Of course you need to research which companies are the best and safest investment for your portfolio, but generally speaking when oil prices go up, oil company stocks normally go up as well.

2)  Buy oil futures.  As with most commodities, you can buy futures contracts with oil.  If oil prices skyrocket you could make a lot of money.  Of course if oil prices go down you could lose your shirt.  So make sure you time it right.  Do your research and invest with knowledge.

3)  Buy an oil well.  One of the benefits of owning your own well is that, unlike oil futures, you will still make money when oil prices go down (of course you'll make less money than when they go up).  A quick Google search can help you find oil wells for sale.  Generally you buy a well from a company who operates the well for you and then sends you a check.  Many wells produce 1-10 barrels of oil a day which could offer some good long term profits.  You can also invest in oil drilling companies.  Investing in oil wells or oil drilling companies can be expensive and risky, so you need to do a lot of due diligence.  There are three things you should look for when considering buying an oil well, according to Trident Exploration.

• Look at Offset Production for Wells in next-door leases. This can give you a good gauge on what production should be; additionally you can compare this to county averages and then State averages.
• Look at County Well Averages to see if the people you work with are high or low on production estimates.
• Look at how many dry holes have been drilled in offset leases in the County and what the ratio to wells online to wells that are dry holes.

Savvy Royalties  provides a due diligence checklist that you should consider before investing.

4)  Invest in oil royalties.  Basically you buy the mineral rights to a piece of property and then oil drilling companies pay you a royalty for pumping out the oil.  Just like in #2 above, you should do your due diligence.  Savvy Royalties is one company that can help you in this matter.  I have not invested with them and therefore cannot vouch for how good they are.  But as I said above they do provide a due diligence checklist and a short e-book about oil investing for free simply by giving them your name and email address.

Before you give your money away to any investment firm make sure they are truly who they say they are.  According to the SEC, there are a lot of scam artists out there claiming to have big money oil investments.  According to the SEC here are some red flags to look for to make sure you are not scammed.  The following are from the SEC website.

• Sales Pitches Focused on Highly Publicized News.  Scam artists read the headlines, too.  Often, they’ll use a highly publicized news item, like volatile gas prices, to lure potential investors and make their “opportunity” sound more legitimate. 

• “Can’t Miss” Wells.  Every investment carries some degree of risk so you should be skeptical of any oil and gas investment opportunity pitched as completely safe.  Fraudsters often spend a lot of time trying to convince you that extremely high returns are "guaranteed" or "can't miss." Don't believe it.

• Unsolicited Materials.  Be especially careful if you receive unsolicited materials about an investment.  Simply ignoring investment-related “junk” faxes, emails, voice mail messages, and regular mail may be your best strategy.  And don’t let a package full of colorful marketing materials impress you, even if it’s sent by certified or overnight mail.  If you’re not going to research an opportunity fully, do yourself a favor and put any unsolicited materials in the recycle bin immediately.  If someone calls to follow up regarding the materials, tell him or her “thanks, but no thanks” and hang up.  [Hanging up is critical because scam artists often use scripted sale pitches to keep you on the phone.] 

• Limited Opportunities.  Scam artists often try to give you the impression that the “ opportunity” they are promoting is scarce, hoping you will hand over your money hastily before doing any due diligence.  Resist the pressure to invest quickly, and take the time you need to investigate before sending money.

• High Rates of Return.  Compare promised yields with current returns on well-known stock indexes. Any investment opportunity that claims you'll get substantially more could be highly risky. And that means you might lose money.

• Tips or Secrets.  A promoter may discourage you from talking about the opportunity with someone you trust, like a loved one, attorney or financial professional.  If that happens, stop listening, and leave or hang up.  Then, be sure to contact us.

To protect yourself, the SEC recommends asking lots of questions and then going back and checking the answers on your own.  You should also check with state oil and gas regulatory agencies to find out about the company.

Oil could be a way to hedge your bets in a hyperinflationary scenario, and could have you smiling instead of cringing when oil prices go up.  But oil investing can be risky like any other investment.  Oil prices could go down, and wells do go dry.  So always do solid due diligence to insure your are making a good sound investment.