Had you invested in oil six months ago, you would have benefited from a staggering 34 percent return on your investment. Everyone seems to be talking about the credit crunch and spiralling fuel prices, so is investing in oil a wise idea?

The price of oil has been on an upward trend for over six years – that’s the longest period of rising prices ever recorded. Despite tiny falls in the usage of oil in the US and the UK in recent times, developing countries are starting to consume more oil, therefore the overall demand is increasing and is expected to remain high for the next few years.

Do you already invest in oil?
The chances are that if you are a general investor, you will probably have some exposure to oil in your portfolio already, perhaps even as much as 20 percent. Even if you do not own a commodities fund, you are likely to have shares in companies that extract and distribute commodities, therefore you are likely to be exposed to some oil.

Is oil a good investment?
Demand for oil is still high and supply is fairly tight. Rises in production of oil is unlikely, and the vastly inflated prices seen recently are quite often blamed on hedge fund speculators. This means that oil prices are likely to remain high for the next few years at least.

The problem is that oil prices are likely to be a little volatile and there is little agreement on which way prices are going to go. Some experts predict that oil prices will continue to rise, whereas others believe that the peak oil price has been reached and will therefore go no higher.

How to invest in oil
If you want to invest in oil, there are several ways to do so. The first route to look at is exchange traded funds, otherwise known as ETFs. An ETF tracks the market in the same way as index funds do, however they act like shares in that they can be bought and sold during the trading day without having to pay stamp duty on the purchase. There are different ETFs to look out if you are a more seasoned investor, such as short or leveraged versions.

You can, of course, also spread your investment across the energy sector to include other commodities such as natural gas.

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