Loading the player...
A:

Investors have many options for getting involved with oil. These methods come with varying degrees of risk and range from direct investment in oil as a commodity, to indirect exposure in oil through the ownership of energy-related equities.

One direct method of owning oil is through the purchase of oil futures or oil futures options. Futures are highly volatile and involve a high degree of risk. Additionally, investing in futures may require the investor to do a lot of homework as well as invest a large amount of capital.

Another direct method of owning oil is through the purchase of commodity-based oil exchange-traded funds (ETFs). ETFs trade on a stock exchange and can be purchased and sold in a manner similar to stocks. For example, buying one share of the U.S. Oil Fund (AMEX:USO) would give you exposure to roughly one barrel of oil.

In addition, investors can gain indirect exposure to oil through the purchase of energy-sector ETFs, like the iShares Global Energy Sector Index Fund (PSE:IXC), and to energy-sector mutual funds, like the the T. Rowe Price New Era Fund (PRNEX). These energy-specific ETFs and mutual funds invest solely in the stocks of oil and oil services companies and come with lower risk.

For more on this topic, read An Introduction To Sector Funds, Futures Fundamentals: Introduction and ETFs Provide Easy Access To Energy Commodities.

If you are looking for more information about investing in oil companies, Investopedia's Advisor Insights tackles the topic by answering one of our user questions.

RELATED FAQS
  1. When you buy oil, do you have to buy thousands of stocks at one time or can you start ...

    I am new to oil stocks and want to invest a couple thousand dollars. Do oil stocks pay dividends? Is now the time to ... Read Answer >>
  2. What causes oil prices to fluctuate?

    Discover how OPEC, demand and supply, natural disasters, production costs and political instability are some of the major ... Read Answer >>
  3. Why do oil stock prices drop?

    Doesn't lower oil prices mean more profit for companies that use oil products?  ... Read Answer >>
  4. If oil producers run out of room to store oil, will the price of gasoline plummet?

    Learn about what happens to gasoline price when room to store oil runs out and whether this creates a good situation for ... Read Answer >>
  5. Why are stocks and oil so correlated right now?

    Learn whether the stock market and oil prices will continue their highly correlated price relationship or decouple again ... Read Answer >>
  6. Besides oil companies, what businesses are hurt by cheap oil prices?

    Falling oil prices do not only affect oil companies. Learn what other types of businesses are unintended victims of the drop ... Read Answer >>
Related Articles
  1. Investing Basics

    How Can I Buy Oil As An Investment?

    Choices abound for investors who want to get involved with oil.
  2. Mutual Funds & ETFs

    Take Advantage of Cheap Oil, Invest in these ETFs

    With crude oil prices at record lows, investors should consider oil ETFs over oil company stocks as ETFs more closely mirror the price of oil
  3. Retirement

    Looking to Add Oil Into Your IRA or Roth IRA? Here's How

    Learn the different ways investors can gain exposure to the price of oil and oil companies in their IRAs. See how individual oil stocks can be risky.
  4. Trading Strategies

    Oil Boom 2.0: Be Sure You Are Ready to Invest

    Learn about the potential for oil boom 2.0, and discover why some experts say this is a good time to invest in oil companies and ETFs.
  5. Stock Analysis

    Is Now the Right Time to Buy Oil Stocks?

    Learn about the oil industry and how crude oil effects the prices of oil stock. Understand if now is a good time to purchase oil stock.
  6. Active Trading

    How Does Crude Oil Affect Gas Prices?

    Find out how this commodity's fluctuating price affects more than just how much you pay at the pump.
  7. Economics

    Who Wins With Low Energy Prices? 

    Low oil prices are here to stay for some time. Which economies will benefit or lose from the low oil price regime?
  8. Fundamental Analysis

    Long on Oil? Buy Canadian Dollars

    Discover why investing in the Canadian dollar can give investors exposure to the crude oil market without the risks of futures investing.
  9. Economics

    How Oil Prices Impact the U.S. Economy

    Now that the United States has increased oil production through shale oil and fracking, low oil prices can harm the U.S. oil industry and its workers.
  10. Active Trading

    What Determines Oil Prices?

    Changes in the price of oil aren't arbitrary. Read on to find out what moves them and why.
RELATED TERMS
  1. Oil ETF

    A category of exchange-traded funds that invest in companies ...
  2. Oil Services Industry ETF

    A sector exchange-traded fund (ETF) that invests in companies ...
  3. Unconventional Oil

    A type of petroleum that is produced or obtained through techniques ...
  4. Initial Production

    The measurement of an oil well's production at the outset. Initial ...
  5. Oil Reserves

    An estimate of the amount of crude oil located in a particular ...
  6. Crack Spread

    The spread created in commodity markets by purchasing oil futures ...
Hot Definitions
  1. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  2. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  3. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  4. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  5. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
  6. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
Trading Center