Investing in crude oil: 5 ways to get into the oil market
08:57, 7 March 2019
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.
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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
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:
History of crude oil trading: from 19th century to the present day and beyond
Brent vs WTI crude oil: Top 5 differences between the world’s major oil benchmarks
Investing in crude oil: 5 ways to get into the oil market
How to trade oil: CFDs vs futures
Markets in this article