How to Invest in Oil Stocks
Are you ready to learn how to invest in oil stocks? Commodities are drawing interest across the investment landscape for many reasons. And crude oil is an essential piece of the global market.
In fact, there are many outlets to oil investing. From futures contracts to buying up physical crude oil barrels, you can make your investment outside of the stock market. However, don’t sleep on exchange-traded funds (ETFs) and large cap stocks.
How to Invest in Oil Stocks With ETFs and More
There are more than 100 oil-producing companies listed on the New York Stock Exchange. This includes large cap companies such as Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CXV).
There’s also a growing list of oil penny stocks. For example, these include:
- VAALCO Energy (NYSE: EGY)
- Valaris (NYSE: VAL)
- Superior Drilling (OTC: SPDI)
- W&T Offshore (NYSE: WTI)
- Northern Oil & Gas (NYSE: NOG)
Many of these businesses took a major market hit in April 2020 due to the coronavirus pandemic. However, they rebounded quickly after hitting record lows that April.
And now they’re surging in the right direction once again. But you can’t learn how to invest in oil stocks without learning about exchange-traded funds, or ETFs, first.
ETFs are a type of investment product that pool money from investors and invest it according to the fund’s stated objective. This usually comes through a large portfolio of securities, which provides investors with diversification of their portfolio.
ETFs look and feel like stocks, and they trade the same way, too. You can buy some of the most prominent oil ETFs on the market today, such as:
- United States Oil Fund ETF (NYSEARCA: USO)
- Vanguard Energy ETF (NYSEARCA: VDE)
- ProShares Ultra ETF (NYSEARCA: UCO)
- Energy SPDR ETF (NYSEARCA: XLE)
- Alerian ETF (NYSEARCA: AMLP)
The United States Oil Fund ETF is one of the most recognizable and popular oil ETFs available today. It’s slowly trending in the right direction after falling off a cliff due to the COVID-19 pandemic. It was trading as high as $106.56 in early 2020 before dropping as low as $16.88 in April.
Since then, it’s steadily risen and currently trades around $30 a share. The potential for massive returns is clear as day if and when the coronavirus pandemic ends.
To invest in any of the stocks or ETFs above, you simply need to setup a brokerage account online. The most popular brokerage firms include Fidelity, TD Ameritrade, Charles Schwab and E-TRADE.
For novice investors, you can also consider mobile applications such as Robinhood or Stockpile. These simple apps will help you learn more about the stock market while providing free stock trading with no account minimums.
Other Forms of Oil Investments
Outside of the stock market, you can invest in oil through other outlets. This includes buying up futures contracts or purchasing physical crude oil.
Futures contracts can sound a bit confusing, but it’s not as difficult as you may think. Crude oil futures contracts are a way for buyers and sellers to coordinate the delivery of physical crude oil on a specific date in the future.
In fact, the contract can go up to nine years after the original agreement. And each contract covers 1,000 barrels of oil.
The seller will lock in the contract based on the current price of oil. If the price of oil goes down before delivery, the seller will receive a financial credit to offset the drop in market value. If the price goes up, the seller will take on a loss that offsets the eventual gain.
You can also invest in the oil itself. This is the most direct and straightforward strategy to oil investing. Yet it comes with a major caveat in storage and fees.
Those barrels have to go somewhere, and most owners of physical oil will have to rent out massive oil tankers. Next, it’s somewhat of a waiting game. When the price of oil is up, you can bring in a lot of money. But when the price is down, you may have to take a hit or continue paying fees for storage.
The Benefits of Commodity Investing
Commodities such as gold are usually considered a great play in today’s market. Crude oil falls in line with this thinking.
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About Corey Mann
Corey Mann is the Content Manager of Investment U. He has more than 10 years of experience as a journalist and content creator. Since 2012, Corey’s work has been featured in major publications such as The Virginian-Pilot, The Washington Post, CNN, MSNBC and more. When Corey isn’t focusing on Investment U, he enjoys traveling with his wife, going to Yankees games and spending time with his family.