How can I buy oil as an investment?

By Tony Daltorio AAA
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.

This question was answered by Tony Daltorio.

RELATED FAQS

  1. What is the difference between a short position and a short sale?

    Learn how short selling and short positioning are different, specifically in regards to the nature of the commodity being ...
  2. What are the most common ETFs that track the forest products sector?

    Explore the most common exchange-traded funds that track the forest products sector. Review the performance, expense ratios ...
  3. What are the most common ETFs that track the oil & gas drilling sector?

    Learn about three of the most common ETFs that track the oil and gas drilling sector: the XOP, the IEO and the PXE. Explore ...
  4. Are there any risks involved in trading put options through a traditional broker?

    Explore put option trading and different put option strategies. Learn the difference between traditional, online and direct ...
RELATED TERMS
  1. Benchmark Crude Oil

    Benchmark crude oil is crude oil that serves as a pricing reference, ...
  2. Multibank Holding Company

    A company that owns or controls two or more banks. Mutlibank ...
  3. Short Put

    A type of strategy regarding a put option, which is a contract ...
  4. Cash-And-Carry Trade

    A trading strategy in which an investor buys a long position ...
  5. Wingspread

    To maximize potential returns for certain levels of risk (while ...
  6. Volatility Smile

    A u-shaped pattern that develops when an option’s implied volatility ...

You May Also Like

Related Articles
  1. Stock Analysis

    Is PIMCO's Commodity Strategy (PCRDX) ...

  2. Stock Analysis

    This Concentrated China ETF is Worth ...

  3. Stock Analysis

    Time to Look at PIMCO's Total Return ...

  4. Options & Futures

    Options -- Accessing Stakes In Apple ...

  5. Mutual Funds & ETFs

    These Oil ETFs Offer Cheap, Easy Access

Trading Center