The N1 most traded commodity globally, oil continues to be one of the economy’s main drivers. If you are considering investing in oil, you are not alone. The good thing about you can invest in the oil industry in several ways without transporting it. So what is the best way to invest in oil? Let’s choose the one that suits your goals.
Trading oil futures
Trading futures are considered one of the most direct ways to trade oil without buying real barrels. Future contacts are acquired through brokers or commodities brokers. You buy a contract to buy oil on a certain future date at a predetermined price.
Because most people do not have adequate storage facilities and distribution channels, oil futures trading is what we think of when we talk about oil investments.
Oil futures are the most traded on the market, which makes them extremely fluid. However, they are extremely volatile, as it is challenging to predict oil price movements.
Contracts for difference or CFDs are among the most popular ways to invest in oil with little money. That is why you can speculate with the variation in oil price, between the moment of opening and the closing of the trading day. In this process, the oil itself is not actually bought.
One of the biggest advantages of CFD trading is leverage. CFD trading often does not require any commission, as CFD brokers benefit from generating profits. Another advantage is its flexibility.
Invest in stocks
Another way to invest in crude oil is through oil equity investment operations. In this case, it is necessary to follow world oil prices and delve into the production potential of a particular oil company.
Understanding the complete energy cycle and global competitive landscape and estimating companies’ financial performance will help you distinguish valuable trading assets.
Exchange-traded funds (ETFs) are another option to consider. They provide access to a lot of different assets at the same time. ETFs diversify your portfolio and eliminate the need to choose just one or more stocks when trading.
Investing in commodity-based ETFs is also popular with oil traders. In general, ETFs can be bought and sold like ordinary shares. The main advantage of trading oil ETFs is that they provide diversification through the oil industry at a relatively low price.
Invest in a Master Limited Partnership – Oil MLPs
A master limited partnership (MLP) is a publicly-traded investment vehicle, enjoying the tax benefits of a partnership and the liquidity of publicly traded stocks. By investing in a crude oil MLP, you become a limited partner who receives your share of the profits.