How to invest in oil in 2024
If you want to invest in oil, this is the right page for you. We explain how to do so, whether now is a good time to get involved, and how the oil market functions. Read on to get started.
Where can I invest in oil online?Copy link to section
Investing in oil online is quick and easy; there are plenty of oil stocks, ETFs, and other forms of digital asset that provide exposure. Click on one of the platforms we have featured below to sign up and get started.
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Why invest in oil?Copy link to section
There are numerous reasons to invest in oil, because it plays a major role in the modern world. Here are some of the most notable ones.
- Demand. With just under 100 million barrels of oil today being required, it is quite simply the most popular commodity in the world.
- Speculation. A huge factor that drives the price of oil is speculation by investors. Investing in things like oil futures contracts is a popular practice and has proven to be lucrative over the years.
- Energy needs. While renewable energy is a hot topic right now, it is still nowhere near ready to take over the reigns from oil. As a result, oil is likely to be in high demand for many years to come, with some analysts projecting use to actually rise over the next decade.
- Volatilty. While this may put some risk averse investors off, the volatility created by rampant crude oil speculation creates enormous opportunities for some investors traders to generate returns.
5 top tips for investing in oilCopy link to section
Investing in oil is a phased process that you need to work through carefully and diligently. Here is the best way to approach proceedings.
- Decide on an investment strategy. You can’t invest effectively without a plan. Knowing who you are as an investor and what you want from any investment is key to forumating the right strategy. For instance, do you have enough time on your hands to actively manage your oil investments, or do you want to let your money go to work for you in the background?
- Do your research. The oil market is changing all the time and it can be hard to keep up. As a result, it is crucial to do extensive research before taking a position of any significance. It could be the difference between generating significant returns and losing your capital.
- Set a budget. A budget allows for accountability to naturally occur as part of your investment strategy. It means you won’t be overstretching yourself and risking money you can’t afford to lose, and it also means your goals will be more realistic and measurable.
- Choose between the long term and short term. Some people like to invest in oil based on its credentials for future growth, while others enjoy the volatility of short-term speculation via trading. Consider which route works best for you.
- Find an investment platform. Given the popularity of oil as a tradeable asset, most if not all investment platforms offer a wide range of oil assets. Click the button below for the best options available to you.
Ways to invest in oilCopy link to section
There are a wide variety of ways to seek exposure to the price of oil, each with its own unique advantages. We have outlined the most popular methods below and explained what they have to offer.
Invest in oil stocksCopy link to section
Oil stocks are a portion of ownership in a public company involved in the oil industry – typically, oil producers. The share price of these companies will largely follow the price of oil and the cost of production.
Invest in oil ETFsCopy link to section
Oil ETFs come in two forms. A stock ETF will be a diversified selection of oil stocks, whereas a commodity ETF will be a tradeable fund that has its value backed by reserves of oil. These are both some of the least risky ways to get involved in the oil trade.
Invest in oil mutual fundsCopy link to section
When investing in oil through a mutual fund, you are allowing your capital to be pooled with that of other investors so it can be invested by a fund manager in assets of their choice. Relying on the expertise of experienced financiers can give you peace of mind, and it means you don’t have to do the groundwork yourself.
Invest in oil futuresCopy link to section
Oil futures are used to bet on the future price of oil, and they are the most popular way oil is traded, making them key to the oil market as a whole. However, given their risky nature, you should steer clear of oil futures unless you have plenty of experience.
How does the oil market work?Copy link to section
First off, oil supply and demand plays a key role in how the market functions. Supply is driven by the mining industry, while demand is divided into four main categories that we have outlined below.
- Location. There are dozens of different oil benchmarks depending on the location it was produced. For example, Brent Crude is from four different fields in the North Sea, and it is light and sweet making it ideal for diesel and gasoline. Other examples are West Texas Intermediate (WTI), and Dubai/Oman.
- Transportation. Most oil demand is for road use (around 35%), with aerospace making up another significant chunk of demand. The ebbs and flows in the amount of travel, which can be impacted by things like lockdowns, affects the price of each barrel.
- Energy. Around 20% of oil demand is for electricity generation, be that as a sole form of power or to plug gaps in the grid when renewable forms of energy – such as solar power – become ineffective or inefficient. The petrochemical sector is also huge, which manufactures plastics, resins, and other petroleum-based products.
- Geopolitics. The price of oil is heavily affected by political issues such as war, trade wars, economic sanctions, and supply chain disruption. Major suppliers, like the countries that make up OPEC (Organization of the Petroleum Exporting Countries) have lots of control over how much is sold on the market.
When should you invest in oil?Copy link to section
Because it is the world’s most important commodity right now, and this doesn’t look like changing on an international scale in the next decade. In addition, while it is a volatile commodity, the price of oil only falls dramatically when major events occur, and prices typically trade between a range.
Is oil a good investment in 2024?Copy link to section
This really depends on the state of the global economy and other geopolitical factors. However, oil looks set for a bright future over the next decade, especially as humanity kicks back into top gear following the COVID-19 pandemic.
What should I do now?Copy link to section
To learn more about oil, check out our guide on trading oil or scroll down for all the latest price analysis and news.
Latest oil newsCopy link to section
Try some of our commodities trading courses for beginnersCopy link to section
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