The bedrock of the energy we consume, oil is a popular commodity to invest in by investors looking to benefit from the appreciation of oil prices and the global demand for energy. But before you jump into the world of oil investing, there are some important factors to consider.
Factors Affecting The Oil Market
Oil markets, like any commodity markets, are affected by the demand and supply above else. Yet, unlike other commodities such as copper, oil has a huge political dimension to it as well. OPEC (Organization of the Petroleum Exporting Countries), a cartel of 13 major producers of crude oil, plays a central role in the oil markets by regulating the supply made available to consumers. For example, if OPEC decides to decrease oil production, it can lead to higher oil prices and potentially cause inflation in other sectors of the economy. Conversely, if OPEC increases oil production, it can lead to lower oil prices and potentially stimulate economic growth.
4 Oil Investments To Consider (Oil Stocks, Oil ETFs & Oil Futures)
Buying physical oil is obviously a non-starter for many investors. Thankfully, there are various ways to get exposure to the price of oil without taking delivery of oil barrels. Oil stocks give you exposure to the companies that produce, refine, and transport oil and petroleum products. Oil ETFs are a basket of stocks that track an index or sector related to the oil industry. Finally, investing in oil futures allows you to speculate on the future price of oil.
Here are four oil investments to consider:
- ExxonMobil Corporation (XOM): A global leader in oil and gas.
- Chevron Corporation (CVX): Chevron is another major oil and gas company that operates in over 180 countries.
- Energy Select Sector SPDR Fund (XLE): This ETF tracks the Energy Select Sector Index, which includes companies in the oil and gas industry, as well as companies in the energy equipment and services sectors.
- United States Oil Fund (USO): This ETF tracks the daily price movements of West Texas Intermediate (WTI) light, sweet crude oil, one of the most actively traded crude oil futures contracts.
Where to Buy Oil? Choosing the Right Broker
If you’re looking to buy physical barrels of oil, you’ll need to use a commodities trading platform such as a futures exchange or an online broker. Most online brokers allow you to buy and sell futures contracts for oil. Additionally, some brokers also offer ETFs that track the price of oil.
When selecting a commodities trading platform, it is important to consider the following four factors:
- Reputation: You can judge a lot about a broker by listening to what its customers are saying on sites like Trustpilot and G2.
- Country support: Not all brokers support every country. Before opening an account with a broker, it’s important to verify that they support whichever country you are located in.
- Licensing: Make sure your broker has a license to offer financial products.
- Fees: Consider deposit fees, withdrawal fees, trading fees, overnight fees, and any hidden fees charged by brokers.
We’ve simplified the search for a reliable broker with our top picks below.
Is Oil A Good Investment?
Like any commodity, oil is subject to fluctuations in global supply and demand that determine its price, most of which are driven by OPEC decisions. It has historically been a popular investment due to its high liquidity and potential for significant returns. However, oil has been volatile historically, dropping below 0 at one stage in response to geopolitical events. Investors should consider their individual investment goals and risk tolerance before investing in oil or any other commodities.