“Oil” goes beyond what you put in your car, and understanding this complex market takes more than waiting to fill your tank until your local gas station’s prices dip. Just like any investment, supply and demand play a role in how much oil is worth. For example, the Russian invasion of Ukraine in February 2022 caused oil prices to jump over concerns about global supply. That’s in part because our How to buy crude oil society depends on oil for everything from commuting to work to heating homes. However, subsidies are not always beneficial to a country’s economy, because although they tend to spur demand in the country, they may also cause the country’s oil producers to sell at a loss. As such, removing subsidies can allow a country to increase oil production, thus increasing supply and lowering prices.

• If you want to speculate on the price of oil but prefer to hold stocks, you can either buy oil stocks or you can invest in oil ETFs, such as the U.S.
• To profitably buy and sell oil options there are four key steps that all investors need to take.
• Crude oil imports of about 6.28 million b/d accounted for about 75% of U.S. total gross petroleum imports, and non-crude oil petroleum accounted for about 25% of U.S. total gross petroleum imports.
• Investing in oil mutual funds allows you to diversify your investments by spreading money amongst upstream, downstream and integrated oil companies.
• They are used to make refined products like petrol, diesel and jet fuel.
• One of the most recent examples is the Covid-19 pandemic, which sent oil prices tumbling when restrictions were implemented but also sent them skyrocketing once restrictions were lifted.

Because oil stocks’ profitability mirrors the demand for oil, they are not risk-free investments. The price of a barrel of crude oil varies like a company’s stock prices. You may have heard that oil is a non-renewable resource and you already know how much the global economy depends on it. In this article, we’ll go over the pros and cons of buying oil futures and explain why it’s riskier than it may seem but also why it could be a great investment. When you buy oil futures, you’re betting money that you know how the price of oil will change in the future.

Fundamental and technical analysis

Demand for petrol and diesel could fall as more drivers make the switch to electric vehicles. Political unrest, strike action or war can disrupt crude oil production and reduce supply. International sanctions on a country can reduce the availability of its oil on the market, thereby reducing global supply. Crude oil is a commodity extracted along with natural gas by drilling in oil fields.

Access to Electronic Services may be limited or unavailable during periods of peak demand, market volatility, systems upgrade, maintenance, or for other reasons. Oil futures are one of the most frequently traded derivatives on the market — in short, it’s a great investment. You can thrive on oil futures’ high volume trades, leverage options and the fact that it’s relatively easy to get started. You can buy crude oil stock futures here, request assistance from the broker or take advantage of other investment options. CME Group futures contracts can be settled by physical delivery at the option of the seller of the futures contract. If anything, this price volatility highlights the potential risks and rewards of investing in oil.

How To Invest In Crude Oil

The ETRACS Alerian Midstream Energy Index ETN (AMNA), sponsored by UBS (UBS), is a similar offering. Because the midstream sector includes master limited partnerships, midstream ETFs (as opposed to ETNs) tend to lag in performance because they cannot take advantage of certain MLP tax benefits. The process typically requires completing an online application and waiting a few days. Some brokerages require a minimum account value to authorize futures trading, while others do not. Studying price charts, graphs and technical indicators to extract numerical information is all part of technical analysis, which usually is the second stage of the process. However, both strategies are needed for oil trading, as the commodity can be highly volatile and therefore it benefits to use a comprehensive perspective.

Oil stocks and mutual funds make it easy for beginners to invest in oil and oil-related investments — without having to relocate to the Lone Star State. Spread betting is our most popular derivative product that allows traders to trade on oil price movements for a wide selection of commodities, including both Crude Oil Brent and West Texas. Spread betting is a leveraged product, meaning that only a percentage of the full trade value is needed as a deposit to open a position. As a trader, you will not own the underlying asset but instead have the ability to speculate on price movements. The last major draw to crude oil futures is that the supply
is finite.

Risks of Investing in Crude Oil

Oil companies will continue to remain near the top of the list of the most valuable businesses in the world, even when oil prices falter over concerns about the impact of political events or pandemics. After being extracted from the ground, crude oil is processed and used in many different petroleum products (the term “petroleum” is often used interchangeably with “oil”). “You’re investing in something that’s really sensitive to things going on geopolitically,” McNally notes. At times, traders could find themselves almost feeling like you’re rooting for disruptions that will boost the price of crude, he adds.

You can trade a variety of oil markets with including popular crude oils WTI and Brent Crude, as well as no lead gasoline and heating oil. When you trade US Crude oil options, you’ll be trading the price of oil options via CFDs. Options can be a great way to take control over your leverage – as you wouldn’t lose more than your initial outlay.

Understanding crude oil

Analysts expect Saudi Aramco’s revenues and profits to slide over the next few years from 2022’s spike, according to data from Business Insider. The company’s income has climbed as crude oil prices have jumped to their highest level since its 2008 peak. CFDs also allow traders to use leverage to multiply the size of their positions. This means that investors can increase their market exposure and potentially maximise profits from the initial investment.

Renewable energy companies, for example, create energy from natural sources that can replenish themselves, such as wind and solar. However, energy levels can fall if the sun isn’t shining or water levels are low. Investing in oil doesn’t mean going to the gas pump, filling up a few gas cans and selling them to your friends or neighbors if the price goes up. For example, negotiations within OPEC—the Organization of the Petroleum Exporting Countries—are necessary to monitor, and can quickly change dynamics within the oil market, Quaid notes. Found below the earth’s surface, nearly half the supply is produced in the U.S., Saudi Arabia and Russia. Historically, crude oil has been obtained primarily via drilling into underground or underwater reservoirs, though fracking—injecting high-pressured liquid into underground reservoirs—is a newer technique.

There are also differences in terms of where oil is produced for sale. Both Brent Crude and West Texas Intermediate are light and sweet, making them ideal for refining into gasoline. This is why, despite the rising production of oil in the United States, it must still import oil.

Learn more about futures and the unique advantages of futures trading. Carefully consider the investment objectives, risks, charges and expenses of ProShares before investing. This and other information can be found in their summary and full prospectuses. A fortuitous meeting between a gas trader and his broker at a bar in downtown New York was not going the way I had hoped. After revealing a long-held plan to try to buy a barrel of crude, I was now receiving a disappointingly stern lecture on the dangers of hydrogen sulfides.