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How to Invest in Oil: 5 Easy Ways to Get Started

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3 min read

Investing in oil can be a lucrative way to diversify your portfolio and potentially earn significant returns.

Oil Investing

The oil industry is complex, and there are many factors to consider before investing in commodities. In this blog post, we will explore the different ways to invest in oil, the risks involved, and strategies for successful investing.

Oil Exchange-traded funds (ETFs)

One of the easiest ways to invest in oil is by buying oil ETFs through an online brokerage.

ETFs can offer investors a low-cost way to invest in oil, with lower management fees than comparable oil mutual funds. Exchange-traded funds (ETFs) are investment funds that hold a basket of stocks, bonds, or commodities.

ETFs can offer investors exposure to a diversified portfolio of oil stocks, reducing some of the risks associated with investing in individual stocks. 

Investing in Oil ETFs is a great way for beginner investors to gain broad exposure to the oil market.

To invest in oil ETFs, you can open a brokerage account with an online broker that offers ETF trading and purchase shares of the ETF.

Popular oil ETFs:

  • United States Oil Fund (USO)
  • Invesco DB Oil Fund (DBO)
  • ProShares Ultra Bloomberg Crude Oil ETF (UCO)
  • iPath Series B S&P GSCI Crude Oil ETN (OIL)
  • SPDR S&P Oil & Gas Exploration & Production ETF (XOP

Oil Stocks

Investing in oil individual oil stocks is one of the most popular ways to gain exposure to the oil industry.

Oil stocks represent ownership in oil and gas companies, which are publicly traded on stock exchanges. These stocks can offer investors a high level of liquidity because they can be easily bought and sold on the stock market.

When investing in oil stocks, it’s important to research the company’s financials, including revenue, earnings, and debt levels, as well as its track record of exploration and production. It is also important to consider geopolitical factors that can affect the company’s operations and profits.

These companies are often referred to as “oil majors” and include industry giants like ExxonMobil, Chevron, and BP. When you buy shares in an oil company, you are essentially buying a small ownership stake in the company and its future earnings potential.

To invest in oil stocks, you can open a brokerage account with a reputable online broker and purchase shares of your chosen company. 

Master Limited Partnerships (MLPs)

Another great way to invest in oil is by investing in MLPs. Master Limited Partnerships are publicly traded partnerships that invest in energy-related assets, including oil and gas pipelines and storage facilities.

MLPs provide investors with exposure to the oil market while also offering the potential for regular income in the form of distributions, but they also carry some risks, including the potential for losses if the MLP’s assets decline in value.

There are several ddddaoil MLPs to choose from, so it is important to select one that aligns with your investment goals and risk tolerance.

Some of the largest and most well-known oil MLPs include:

  • Enterprise Products Partners (EPD)
  • Magellan Midstream Partners (MMP)
  • Plains All American Pipeline (PAA)

MLPs are structured as partnerships and have unique tax implications, so MLPs are not recommended for beginner investors.

Oil Futures and options

A less common way for individual investors to invest in oil is through futures and options. Futures contracts allow investors to buy or sell a specified amount of oil at a predetermined price and date in the future. Options, on the other hand, give investors the right, but not the obligation, to buy or sell oil at a specified price and date in the future. It can be a high-risk investment strategy because the price of oil can fluctuate significantly due to various geopolitical and economic factors.

To invest in oil futures and options, you will need to open an account with a commodities broker like [Insert Broker].

It’s important to do your research and choose a reputable broker with experience in the oil market. Once you have opened an account, you can start trading oil futures and options.

One of the main advantages of investing in oil futures and options is that you can potentially earn significant returns with a relatively small upfront investment.

However, this type of investment can also be risky, as the oil market can be volatile, and prices can fluctuate rapidly. It’s important to have a solid understanding of the market and a well-thought-out investment strategy.

When investing in oil futures and options, it’s important to stay up-to-date on the latest news and trends in the industry.

Factors such as supply and demand, geopolitical tensions, and global economic conditions can all have a significant impact on the price of oil.

It’s also important to have a solid understanding of technical analysis and charting, as this can help you identify potential trends and trading opportunities.

5. Royalty trusts

Another way to invest in oil is through Oil Royalty Trusts. Royalty trusts are investment vehicles that allow investors to own a share of the royalties generated by oil and gas production.

Many Royalty Trusts are publicly traded and can therefore be easily bought and sold on a stock exchange.

Oil trusts can provide a steady stream of income, although they may be impacted by fluctuations in oil prices.

Popular Oil Royalty Trusts

  1. Permian Basin Royalty Trust (PBT)
  2. San Juan Basin Royalty Trust (SJT)
  3. Hugoton Royalty Trust (HGT)
  4. Sabine Royalty Trust (SBR)
  5. Cross Timbers Royalty Trust (CRT)

How to invest in oil with little money

Investing in oil with little money is possible, but it’s important to understand that the options available may be limited, and the risks associated with investing in oil can be significant.

Investing in oil with little money can be challenging, but a great way gain exposure to the oil industry without breaking the bank is through fractional share investing.

The are several pros and cons of fractional shares, but the most significant advantage is that you can buy shares of expensive stocks like ExxonMobil with at just a portion of the cost.

The Bottom Line

Investing in oil can be a complex and volatile endeavor, and the bottom line depends on various factors. Here are some key points to consider:

  1. Oil prices can be highly volatile and subject to significant fluctuations based on a wide range of economic, geopolitical, and environmental factors.
  2. While investing in oil can provide the potential for significant returns, it also carries significant risks, including market volatility and regulatory changes.
  3. Oil companies may offer different types of investments, such as stocks, mutual funds, or exchange-traded funds (ETFs). Investors should carefully consider each option’s investment strategy, fees, and performance history before deciding.
  4. With the increasing global focus on renewable energy, some investors may be concerned about the long-term sustainability of oil investments. It is important to consider the potential impact of changing energy trends on the future value of oil investments.

In summary, investing in oil can potentially provide attractive returns, but it also carries significant risks and may be subject to changing market and regulatory conditions. As with any investment, it is important to carefully consider the potential risks and benefits.

Real World Investor

Adam

Adam is the founder of realworldinvestor.com, an investing website dedicated to helping discerning individuals make the best investment decisions.

Before starting Real World Investor, he was a Senior Vice President at one of the country's largest investment banks. He has over 10 years of experience working in financial services. His experience includes working with complex derivatives while spending many years working on a trading floor.

He has a bachelor's degree in Business Administration, majoring in finance.