Crude oil is a physical commodity that many people consider investing in. Investing directly in crude oil, however, is a bit complicated as it would require you to physically own barrels of the oil. This would cause quite a few logistical nightmares, never mind the safety hazard of storing the flammable liquid as an individual. Luckily for you, there are a few better options out there, including:
- Crude oil futures
- Oil EFTs (exchange-traded funds)
- Energy companies
Here we’ll have a closer look at these three options and how they work when it comes to investing in crude oil.
Crude Oil Futures
A futures contract allows you to agree to buy or sell a specified amount of crude oil at some time in the future. This gives you exposure to the price of the oil, without you having to physically store the barrels. It means that if the price of oil rises, you make a profit, but if the price falls, you make a loss. Futures contracts offer highly leveraged investments so that you only need a small amount of the value of the contract in your brokerage account at any one time. This makes it more accessible for people to trade but be aware that it doesn’t mean you can’t lose more than that amount.
Oil EFTs
Oil EFTs, or exchange-traded funds, give you exposure to the price of oil, without you actually owning the commodity. Oil EFTs are either oil company stocks or futures and derivatives contracts. For example, the United States Oil EFT is a fund that includes futures, options and forward contracts for various oils, gases, and petroleum-based fuels. With this, you will be exposed to the price of oil without having to physically own any of it.
Energy Companies
A popular way for people to invest in crude oil is to invest in companies that are involved in the industry, such as those that explore, refine, produce, sell or transport crude oil. Depending on the nature of the company, the value of the company rises or falls depending on the value of crude oil. Some of these have a simple correlation, while others are more complex. By investing in companies that profit from the rising oil prices, you can improve your chances of success.
Choosing Your Way of Investing
Crude oil is an attractive investment option for many people, although because we are talking about a commodity, it is common practice to find a way to invest without having to actually store the commodity itself. With the numerous options that exist for investing in crude oil, no-one needs to be put off by the logistical difficulties that would arise if you bought the commodity. Now there are ways of investing in oil without actually having to buy the oil itself. These are simple while still giving you exposure to the price of the oil. There is plenty of profit potential when it comes to investing in oil so choose the method that works best for you.
