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A beginner’s guide to oil: Price, uses & market overview
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On this page, we explore everything you need to know about oil. Gain insights into oil market trends, pricing mechanisms, and the environmental impact of oil.
Read on to learn more about this popular commodity and find links to beginner friendly guides explaining how you can get involved in oil.
What is oil?
Copy link to sectionOil is the most widely traded commodity in the world. It’s a natural resource that’s crucial to the 21st-century economy, used in the production of plastics, textiles, and computers, and turned into the fuel that makes it possible to transport those products across the globe.
Those uses are what make oil such a valuable commodity. Even as the world looks for ‘greener’ and more environmentally friendly energy sources, oil is still vital to so many industries and every developed country needs lots of it to – literally – keep the lights on.
Oil market overview
Copy link to sectionWhat makes oil a bit different to many markets is that ‘intangibles’ affect its price along with real-world factors. A lot of crude oil trading is based on speculation, and what the community believes is going to happen can move the price quite significantly.
That speculation is often based on oil’s unique place in global politics, where it’s often used as a bargaining chip by all sides.
The USA, Russia, and China are three major oil producers, while 40% of the entire supply comes from countries known collectively as ‘OPEC,’ led by the likes of Saudia Arabia, Iraq, and Iran. Policy decisions in these countries can have big effects on the price of oil.
Is oil valuable?
Copy link to sectionYes, oil is a valuable commodity and there are numerous reasons why investors are attracted to the market. We have highlighted some of these key fundamentals below, explaining what they are and why they matter.
- 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.
- Volatility. While this may put some risk-averse investors off, the volatility created by rampant crude oil speculation creates enormous opportunities for some investors and traders to generate returns.
How to invest in oil
Copy link to sectionYou can invest in oil by using an oil trading platform. These platforms offer a range of commodities and are very easy to use. There are different platforms suitable for specific requirements.
Some let you buy oil CFDs, others let you trade oil, and many are designed for investing in the commodity.
Oil in your investment portfolio
Copy link to sectionA diverse investment portfolio can help protect you during market uncertainty, and the inclusion of oil can add value while allowing you to spread your money across various markets.
Oil often moves independently to traditional investments like stocks and bonds. You can include oil in your portfolio as a hedge against potential losses. During times of economic uncertainty, investors view energy commodities such as oil as attractive options.
Oil’s long history and the fact it is a necessary commodity for much of the world make it a good long term play.
Oil vs other commodities
Copy link to sectionOil is part of the energy family of commodities, including natural gas, coal, and ethanol. Each commodity is unique in its own way and offers different features for investors and traders. You can learn more about how to invest in energy commodities or use our dedicated guides below for specific markets.
- Natural gas. Natural gas is an energy commodity used to power nations across the world.
- Coal. Coal is another energy source used for various purposes including heating.
- Ethanol. Ethanol is a fuel made by fermenting and distilling sugars from crops like corn and grains.
