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Investing in crude oil: 5 ways to get into the oil market

08:57, 7 March 2019

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How do you invest in oil? The question never loses its relevance. The world’s economy can’t do without oil – a powerful economic driver and popular investment. Even if you are not ready to hit the oil well just yet, you should consider digging a little bit deeper into the oil market and learn what it’s really about.

How to invest in oil

After a rocky year for oil in 2018, there is no easy way to predict oil price movement in 2019. Still, as of the end of February 2019, the latest WTI oil price stood at around $56 per barrel, while Brent crude was valued at $65 per barrel – painting a more or less steadily growing picture.

January-February Oil Spot Prices

Invest in oil stocks

Oil prices directly influence the value of oil exploration company shares. One of the most popular ways of crude oil investing is to buy the leading oil stocks. In choosing the best oil companies to invest in, you should take a glance at the performance of their stocks. Check out the company’s annual reports, and consider the following parameters: revenue, net income, earnings per share, debt level and dividends they pay to investors. Currently, the key players in the crude oil market are the following:

    The largest oil refiner in Asia.

    The world’s leading refiner with a capacity of processing around 6 million barrels a day.

    Shell operates more than 40,000 oil service stations worldwide.

   The company was the first to discover oil in the Middle East.

   This oil giant operates over 900 subsidiaries, which cover all areas of energy production.

Invest in oil futures

There are a number of platforms for crude oil investing. Two of the world’s most popular crude oil benchmarks – WTI and Brent crude – are often traded through future contracts.

Investing in crude oil futures can be performed on the special commodities exchanges. WTI futures are traded on the New York Mercantile Exchange (NYMEX), managed and owned by the CME Group, while Brent futures are traded on the Intercontinental Exchange (ICE) in London.

WTI and Brent futures have the following specifications:

 

WTI

Brent

Contract Size

1,000 barrels

1,000 barrels

Priced in

US dollars and cents

US dollars and cents

Deliverable

YES

YES

Ticker Symbol

CL

BZ

Invest in oil ETFs

Probably the least risky way of investing in crude oil, suitable for a casual trader, is through oil commodity exchange-traded funds (ETFs).

Oil ETFs can combine the stocks of oil companies and oil futures into one single fund, which saves you the trouble of picking up individual oil stocks and looking for top gainers.

Energy-sector ETFs, such as the US Oil Fund (USO) and iShares Global Energy Sector Index Fund (IXC), could be traded the same as stocks while minimising the risk of investing in a highly volatile oil market.

Invest in oil MLPs

Another popular way to invest in crude oil is to buy into a master limited partnership. An MLP is a publicly traded partnership for big oil companies, organised as corporations. By investing in a crude oil MLP, you become a limited partner, getting a share of the profits but with no voting rights.

Very often MLPs are involved in oil storage and transportation, and their performance differs from traditional energy stocks. If you’re interested in oil MLPs, you can look into one of the following: Marathon Petroleum’s master limited partnership (MPLX), Western Gas Partners (WES) and Enterprise Product Partners (EPD).

+1: Invest in oil CFDs

You can also invest in crude oil through a CFD. Contracts for difference are there for those who DO:

  • want to speculate on oil price fluctuations, without owning the real asset

  • want to make short-term investments – going long or short, depending on the oil market's direction

  • have limited funds and are interested in a leveraged product.

And for those who DON'T:

  • want to deal with conventional stock exchanges and actually buy oil

  • have enough money to buy oil stocks, futures or ETFs

  • want to make long-term investments in the volatile oil market

Trade Oil with CFDs

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 81% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Read more about oil trading:

  1. History of crude oil trading: from 19th century to the present day and beyond

  2. 4 major types of crude oil

  3. Brent vs WTI crude oil: Top 5 differences between the world’s major oil benchmarks

  4. Investing in crude oil: 5 ways to get into the oil market

  5. How to trade oil: CFDs vs futures

Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.

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