The more common way to invest in oil for the average investor is to buy shares of an oil ETF. In November 2021, USO agreed to pay a combined $2.5 million in penalties to the U.S. Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC) to settle allegations it failed to disclose in a timely manner the position limits imposed by its broker. Oil and gas producers might also use volumetric production payments (VPPs) to increase cash flow and fund pre-exports. VPPs allow the owner to maintain ownership while monetizing their field or proven orders. This is where oil CFDs can be a flexible and more accessible alternative.

OPEC Decisions

The fund may hold dozens of oil stocks, reducing your reliance on any one of them too much. You’ll need to work with a broker that offers futures trading, which typically requires a higher account minimum than a traditional stock brokerage account. You can invest in oil derivatives called futures, essentially doing for yourself what the oil ETFs charge you for. Futures are the most popular way to trade commodities such as oil, gold, corn, wheat and a range of other agricultural goods. Crude oil producers and consumers use futures to hedge production revenue and energy costs respectively. Speculators trying to profit from short-term price changes are less likely to take delivery of the underlying commodity at a future contract’s expiration.

Best Forex Indicators: Complete Guide to Trading Tools

Luckily for anyone new to investing, there’s a whole myriad of online brokers that make venturing into any market easy and straightforward. One such multi-asset platform is eToro, through which you can gain exposure to CFD oil trading. The global balance between oil supply and demand is the most critical price determinant. Seasonal variations, industrial growth, and transportation needs contribute to demand fluctuations. In terms of fees, ETFs stand out for their simple pricing and lack of leverage, which is ideal for passive exposure. Futures contracts involve order execution commissions, margin calls and sometimes complex rollover fees.

• One of the easiest ways to invest in oil is via an oil exchange-traded fund (ETF).
• Two of the largest funds here include the Vanguard Energy Fund (VGENX), with an expense ratio of 0.44 percent, and Fidelity Select Energy Portfolio (FSENX), with an expense ratio of 0.65 percent.
• With millions of contracts changing hands daily, they are a preferred choice for speculators and hedgers due to their liquidity and around-the-clock trading.
• NerdWallet, Inc. is an independent publisher and comparison service, not an investment advisor.
• Discover the main methods for investing in crude oil, as well as the risks, opportunities and best practices.

Futures contracts are agreements to deliver a quantity of a commodity at a fixed price and date in the future. For most, crude oil futures or options on oil futures will be the more realistic alternative. On the CME Globex futures exchange, a single crude contract represents 1,000 barrels.

This path may be the best option for investors, because they can profit when oil rises but also when the company increases oil production, so they’re not just stuck relying on the oil price alone. That said, it’s key to understand the dynamics of the oil industry, and closely monitor key indicators that can help you with informed investment decisions. It’s also crucial to diversify investments and consider other asset classes to mitigate any risks. Oil prices are set globally in a variety of spot and futures markets for crude as well as related products by market participants, including producers, consumers, short-term speculators, and longer-term investors.

Investing in futures contracts: Reserved for insiders

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”). She has covered personal finance and investing for nearly 20 years, and was a senior writer and spokesperson at NerdWallet before becoming an assigning editor. Arielle has appeared on the “Today” show, NBC News and ABC’s “World News Tonight,” and has been quoted in national publications including The New York Times, MarketWatch and Bloomberg News. This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our partners cannot pay us to guarantee favorable reviews of their products or services. In addition, as the price of oil increases, each barrel that’s produced becomes incrementally more profitable for the oil company.

By investing in oil, advanced investors can offset a rising oil price on the rest of their portfolio, protecting against the often-volatile pricing of this key input. In recent years, exchange-traded funds (ETFs) and exchange-traded notes (ETNs) have sprung up to offer crude oil exposure for retail investors not able or willing to trade commodity futures. Some crude oil futures contracts use cash settlement at expiration while others require the transfer of crude at a pre-specified delivery point.

How to invest in oil?

Additionally, oil investments can serve as a diversification tool within a portfolio, as they often exhibit a low correlation with traditional asset classes like stocks and bonds. On the other hand, oil as an asset offers several characteristics that attract investors. As such, it has historically provided opportunities for capital appreciation and potential hedging against inflation.

Regardless of the product you are considering, it is essential to fully understand the mechanisms and risks involved, including volatility, leverage and potential capital loss. Understanding contract specifications is critical in crude oil futures trading, where expiration dates, margin requirements, and lot sizes dictate market positioning. Price movements are heavily influenced by major catalysts—OPEC+ decisions, U.S. Energy Information Administration (EIA) reports, and global demand forecasts—all of which can trigger volatility. Traders often rely on technical indicators such as moving averages, MACD, and Bollinger Bands to detect momentum shifts and trend formations.

Rates, terms, products and services on third-party websites are subject to change without notice. We may be compensated but this should not be seen as an endorsement or recommendation by TradingBrokers.com, nor shall it bias our broker reviews. Whilst we try to keep information accurate and up to date, things can change without notice and therefore you should do your own research. Crude oil markets are dynamic, with price behavior often changing due to evolving fundamentals and sentiment. Successful traders constantly monitor market conditions, adjust their strategies accordingly, and stay updated on relevant developments.

Contents

• You’ll need to work with a broker that offers futures trading, which typically requires a higher account minimum than a traditional stock brokerage account.
• Oil offers a lot of positive qualities that can make it an attractive investment.
• Bankrate.com is an independent, advertising-supported publisher and comparison service.
• Decisions made by OPEC members to increase or cut production often have immediate effects on crude oil prices.
• NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.

But navigating oil’s notorious price swings demands disciplined risk management, making stop-loss strategies and position-sizing non-negotiable for those looking to stay ahead in this fast-moving market. Trading crude oil requires a combination of market knowledge, technical expertise, and emotional discipline. Whether through futures, CFDs, ETFs, or oil-related stocks, traders must carefully assess the risks and opportunities presented by this volatile yet rewarding commodity. With the right preparation and mindset, traders can navigate the complexities of crude oil trading and potentially achieve consistent results. How to buy crude oil Crude oil remains one of the most actively traded commodities, offering both risks and opportunities for investors.

How a futures contract works and what it is

U.S. and overseas crude refiners are the sole focus of the VanEck Vectors Oil Refiners ETF (CRAK). While energy prices tend to be volatile, the markets setting them are highly liquid, and market participants are typically well-informed. Patterns such as head and shoulders, triangles, flags, and double tops or bottoms are frequently observed in crude oil charts. Recognizing these patterns early can offer valuable insights into potential breakout or breakdown scenarios. Support and resistance are key price levels where oil tends to stop and reverse direction. Identifying these zones helps traders set entry points, stop-loss levels, and profit targets.

Monitoring And Adapting To Market Conditions

The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments. Oil stock mutual funds offer another avenue to invest in a diversified collection of oil companies that reduces your risk but still gives you upside if the price of oil moves higher. Another way to invest in oil is to own the businesses that produce it, and oil exploration and production (E&P) companies can offer you multiple ways to win when oil rises.

The iShares Global Energy ETF (IXC) provides exposure to the largest energy companies globally. (SHEL), TotalEnergies (TTE), ConocoPhillips (COP), BP Plc (BP), and Enbridge Inc. (ENB). Here are five different ways to invest in oil, from direct ways to the more indirect.