Trading oil: everything about oil investingOil is sometimes called black gold, and for good reason. It is considered as one of the most important commodities and determines the health of the entire economy. Oil reserves are running out and the battle for the rare black commodity will only increase. But how can you, as a private investor, benefit from this? In this article we will discuss how you can invest in oil.
Start to trade oil in three steps:
- Step 1: open a trading account by clicking here >>
- Step 2: go to commodities and look for oil
- Step 3: click the buy button to buy oil
How to invest in oil?CFDs, futures or options. Let's see what the best options are.
CFDs on oilIf you want to speculate in oil barrels in the short term, CFDs are interesting. When you invest in crude oil with CFDs, you pay a specific amount in dollars and the barrels are then placed at your open positions. When the price rises you make a profit and when the price drops you lose money. Of course, the barrels are never actually delivered, so only the price increase or decrease is important. Here you can read more about how trading with CFDs works. CFDs are perfect for speculating on crude oil price changes. You can also bet on a price drop with CFDs. This allows you to achieve good results even when the oil price is performing poorly. A good broker to trade in oil CFDs is Plus500. At Plus500 you can try out the possibilities completely free of charge and without risk. Use the button below to open an account immediately:
At Plus500 you can trade in the price of oil with CFDs. Illustrative prices.this article you can read all about it! eToro. It is also possible to actively trade in oil companies’ shares. There are several brokers where that is possible. Want to know where to invest in oil stocks? Have a look at the broker overview immediately:
How can you predict the price of oil?day traders, investors who actively invest every day. Strong price fluctuations allow active investors to achieve good results with oil. Therefore, it is advisable to keep a close eye on the news reports. With each news story, consider the effect it will have on the average investor. Consider the following examples:
- A news report about the US deciding to tap into their oil reserves (1).
- A news report stating that consumers are increasingly using their car (2).
- There is a war going on in a major oil producing region (3).
Major events have a strong effect on the price of oil shares
Oil in the long termOil is clearly becoming scarcer: the emergence of new major players on the world stage such as China will only increase oil consumption in the coming years. According to recent predictions, it will only be 40 years before the oil supplies are fully depleted. At the moment, oil seems to be a great investment. As stocks continue to decline and consumption continues to increase, it is not unrealistic to assume that the price will rise further. However, it is also important to keep an eye on alternative energy sources. Oil and other fossil fuels are losing popularity because of the pollution they cause. Because of this, several companies are looking for alternative fuels. It may be that in the future an alternative source of energy will become the dominant factor. However, at this moment this is far from the case and until then, it may be attractive to invest in oil!
What should you pay attention to when investing in oil stocks?
Many people invest in oil stocks because of its stable nature. In the short term, the price of oil can fluctuate considerably. Nevertheless, the economy is running on oil and the price always reaches new peaks. But what should you actually pay attention to when selecting and buying oil shares?
Consider what you want to invest inOf course, everyone knows dominant parties like Shell and Total. However, there are many more companies active in the oil production process. When you invest in oil, you can invest in three different stages of oil processing: the upstream, midstream and downstream. The upstream sector is mainly concerned with oil exploration and production. Companies in this sector are looking for ways to get oil out of the ground. For example, a company like Fugro is looking for suitable locations to drill for oil. Other companies are again engaged in producing material or supplying labour. When the economy is doing well, these types of companies do well: there is more demand for higher production. The midstream sector is engaged in the transport and storage of oil. This sector is the link between the upstream and downstream sectors. Examples of companies active in this sector are Vopak and Scorpio. A company that deals with the storage of oil can also do well at a low oil price. In this case, there is often overproduction. These companies are then required to store all the oil that is not used. The last sector that deals with oil is called the downstream sector. This sector refines crude oil and then processes it into a usable raw material. Crude oil still needs to be converted to, for example, petrol for your car, asphalt or kerosene. Companies involved in this step in the production process include Marathon Petroleum and Exxon Mobil. Many larger oil companies are engaged in different components in the oil production process. Research in which market conditions the company you want to invest in does well. Some stocks may be less dependent on the price of oil than others.
Ensure sufficient diversityAlso, when you want to invest in oil by buying shares, you need to diversify sufficiently. It is unwise to put all your money into one oil share. Even in the case of a high oil price, a company can still go bankrupt. Mismanagement or fraud can change a company from a top-tier company to a total flop in a day. Therefore, do enough research when you invest in oil stocks. It's important to understand how a company makes its profits.
Make a planBuying and selling oil shares indiscriminately during a crisis is not a good strategy. It is important to make a plan. First, think about why you want to buy shares. Do you want to build an income by buying stocks that pay a high dividend? Then an investment in Shell could work out well. Do you want to get a high price gain? Then you may need to invest more actively. Determine for yourself what your goal is and then write down what your price target is. That way, you keep following a clear plan and don't lose unnecessary money when you panic.
Pay attention to the costWhen you start investing in stocks, it is essential to pay attention to the costs. By investing with an expensive broker, you sometimes lose out on many thousands to tens of thousands in the long run. Do you want to know which brokers you can invest with the cheapest? In our overall overview you can immediately see what the best party is to start trading oil stocks:
How can you make money from falling oil prices?
It is also possible to make money from falling oil prices. You do this by placing a short position on the price of oil. When you open a short position, you place an order on a falling oil price. This has the following effect:
- When oil prices go up, you lose money.
- When the oil price falls, you make money.
Current oil price
Do you want to start investing right away?Before you decide to invest in oil, it is wise to practice with a free demo account first. This makes it possible to learn the basics of investing first, so you can make a successful start.
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Tip: try trading for free with a demo
Tip: try trading for free with a demo