There are 4 main ways to invest in oil from Australia, but each has it's own unique risk profile and level of exposure to the price of crude oil.
For example, you can buy an oil ETF (exchange-traded fund) which tracks the price of crude oil, or buy stock in an oil-related company, which will offer less direct exposure to the price of oil.
Here are the 4 main ways to invest in oil:
A simple way to invest in oil is through buying oil company stocks.
In Australia, this means companies like BHP (BHP), Woodside Petroleum (WPL) or Oil Search (OSH). In the US, Exxon Mobil and Chevron are the largest oil stocks.
While oil stocks don't give you direct exposure to the price of crude oil, their performance is often correlated with global oil prices, but will also be influenced by the company's own financial performance and fundamentals.
In order to buy oil stocks, you'll first need to sign up with an online broker or share trading platform.
Compare brokers to buy oil shares
This is a list of 5 popular ASX oil stocks, based on total market capitalisation:
Exchange-traded funds (ETFs) are a way to invest in multiple companies or assets with a single investment.
There are two main types of oil ETF: those that track the performance of oil companies, and those that track the price of crude oil.
An ETF that tracks the price of crude oil is arguably the easiest way for investors to get direct exposure to oil without having to physically buy it, or trade it via futures or CFD markets.
In Australia, we have just one ETF that tracks the price of oil, the BetaShares Crude Oil Index (ASX: OOO), but we do have several resources and commodity sector ETFs that are exposed to oil.
ETFs can be purchased and sold in a manner similar to stocks; however, they can allow investors to reduce risk by investing in the broader sector, rather than individual companies.
Like with stocks, you'll need to sign up with a share trading platform in order to invest in oil ETFs.
Compare brokers to buy oil ETFs
The futures market allows you to speculate on future oil prices through derivatives contracts. With the traditional method of futures trading, you buy a contract to purchase physical oil at a future date at a specified price, which you can in turn sell.
In Australia, futures are more often traded through a commodities CFD broker where you never actually trade physical oil.
Instead, you're trading a contract that you make a profit or loss on depending on the price change of the underlying asset. This means you can profit from both negative and positive movements in the price of oil.
Futures and CFDs are extremely volatile and riskier than other investment options. Because they use leverage, both profits and losses are magnified, so it's best suited to more experienced traders.
The 2 most widely traded oil markets in the world are the West Texas Intermediate futures (US benchmark) and Brent crude futures (global benchmark).
Compare brokers to buy oil futures
A Master Limited Partnership (MLP) is a specialised type of business that predominantly exist in the energy industry, including oil.
It has the tax benefits of a private partnership (profits are taxed only when investors actually receive distributions) but is traded on the stock market like any other public company.
Typically, these companies own the pipelines that carry the commodity from one place to another.
The Alerian MLP Index is the most popular way to track the performance of MLPs, and trades on the New York Stock Exchange (NYSE).
We currently don't have a partnership for that product, but we have other similar offers to choose from (how we picked these ):
Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
Trading CFDs and forex on leverage is high-risk and you could lose more than your initial investment. It may not be suitable for every investor. Refer to the provider’s PDS and consider the risks before trading.
While long-term investments in oil companies can be highly profitable, investors should understand the risk factors before making investments in the sector. These risks include the following:
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