Always remember that investments can go down as well as up in value, so you could get back less than you put in. A rule of thumb is to hang on to your investments for at least five years to give them the best chance of providing the returns you want.
You can invest in oil directly by buying physical oil or indirectly by buying shares in oil companies such as BP, Shell, and ExxonMobil, investing in mutual funds and exchange-traded funds (ETFs), trading spot prices, futures or options and investing in Master Limited Partnerships (MLPs).
Here is a breakdown of how to invest in oil:
You can gain exposure to the oil industry through a variety of investment vehicles. These options provide different levels of risk and return, allowing you to choose the one that best suits your investment goals.
Oil spot price trading offers the potential for short-term gains. This method of investing in oil is quite risky as it involves speculating on price fluctuations in the oil market.
Here, we explore the potential rewards of trading oil futures and options while highlighting the inherent complexities and risks.
Master Limited Partnerships (MLPs) present unique investment opportunities by primarily investing in energy infrastructure assets. While these partnerships can generate stable cash flows and offer attractive yields, they also come with tax complexities.
For a more direct approach to the oil market, investors might consider investing in physical oil assets, such as oil wells or oil royalties. This method offers potential returns but also carries risks, including the uncertainty of oil exploration and production challenges. Let’s explore these options and how you can invest in them from the UK.
We’ve compiled a list of the best brokerages to invest in oil in the UK. These are our top ten oil trading apps for buying and selling oil company shares, mutual funds, ETFs, spot prices, futures and options.
Please keep in mind that when you trade, your capital is at risk. The fees below are not exhaustive–other fees apply. ISA, pension, and tax rules also apply.
Here are the best brokerages for oil investing in the UK:
eToro, often regarded as the best trading platform in the UK, is a multi-asset platform that offers both investing in stocks and cryptoassets, as well as trading CFDs. With eToro, UK traders have real-time access to thousands of stocks, ETFs, indices, commodities, forex, cryptocurrencies, and NFTs from top exchanges worldwide. Catering to both beginners and expert traders, eToro provides an impressive range of fundamental and technical analysis tools, including market news, economic data, social media and news sentiment trends, and advanced charting tools. ProCharts, a professional-grade technical analysis tool available on this top UK trading platform, allows users to compare charts from different financial instruments and time frames. eToro also offers risk management tools, such as Stop Loss, Take Profit, and Trailing Stop Loss, to help you better manage your positions and protect your investments.
For customers who prefer ready-made investment portfolios, eToro has over 40 fully allocated, balanced investment portfolios, focusing on market segments you can understand and relate to. Some of the portfolios include MetaverseLife, BigTech, GoldWorldWide, Vaccine-Med, BitcoinWorldWide, Diabetes-Med, Driverless, and GigEconomy. These portfolios are a grouping of several assets, such as stocks, cryptocurrencies, ETFs, and even people, bundled together based on a predetermined theme or strategy. eToro also offers Copy Trading, a unique feature that allows everyday investors to copy the trades or investments of top-performing traders on the eToro platform. Anyone can copy trades on eToro, and likewise, anyone can give others access to copy their trades. If you are an expert trader approved to participate in eToro’s Popular Investor Program, where others copy your trades, you will be eligible to receive monthly earnings.
It is entirely free to open an account with eToro, and all registered users receive a US$100,000 demo account for free, which you can use to practise trading until you become confident. Trading on eToro occurs in USD, so a currency conversion fee will apply if you deposit or withdraw in a currency other than USD. Withdrawals incur a fee of US$5 (£4), and the minimum withdrawal amount is US$50 (£40). For UK customers, eToro offers an eToro Money app which allows you to convert your GBP to USD free of charge, thereby reducing your foreign exchange costs. eToro does not offer an ISA or SIPP.
Please note: Your capital is at risk. 80 - 90% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money. Additionally, cryptoassets are highly volatile and unregulated in the UK. No consumer protection. Tax on profits may apply. Copy Trading does not amount to investment advice. Other fees apply. For more information, visit eToro.
Pepperstone, a top contender for the best online broker in the UK, is a CFD and forex broker that allows you to trade a wide variety of instruments, including forex, indices, stocks, ETFs, commodities and other assets via contracts for difference (CFDs). The Pepperstone platform boasts low-cost spreads, fast execution speeds and access to over 1,200 trading instruments. The Pepperstone CFD trading accounts allow a minimum trading size of 0.01 lots and a maximum of 100 lots. Retail traders can access leverage up to 30:1 and over 60 currency pairs.
Pepperstone also allows scalping, expert advisors, hedging, and news trading. With Pepperstone, you can trade and enjoy the seamless creation of advanced trading strategies via some of the most popular and powerful trading software in the world, including TradingView, MetaTrader 4 (MT4), MetaTrader 5 (MT5), CTrader, DupliTrade (for social and copy trading), and Capitalise AI (for code-free trading automation). The Pepperstone platform is suitable for both beginners and advanced traders. It is especially suitable for professional traders who want to take advantage of higher leverage. Pepperstone also has a suite of educational materials to help traders at every level.
It is entirely free to open an account with Pepperstone, and all registered users gain access to a free demo account which you can use to practise CFD trading until you become confident. On Pepperstone, the spreads, which function as trading fees for CFD brokers, start at 0.6 pips for forex CFDs, 0.4 for index CFDs, 0.05 for commodity CFDs, and 0.10% per side for UK share CFDs. Pepperstone also charges a swap rate (overnight fee) for holding CFD positions overnight. Other fees apply. Pepperstone does not offer an ISA or SIPP.
Please note: When you invest, your capital is at risk. Between 74 and 89% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and can afford to take the high risk of losing your money.
XTB stands out as the best day trading platform in the UK. It is a user-friendly, fully customisable European trading platform renowned for its extensive CFD and forex trading offerings. XTB provides traders instant access to hundreds of global markets and over 5,600 instruments, including forex, indices, commodities, stock CFDs and ETF CFDs. Customers can take advantage of tight spreads from 0.2 pips, 30:1 leverage and zero commission on stock and ETF CFDs.
With XTB, you can trade using the in-house trading software, xStation, or via MetaTrader 4 (MT4). xStation by XTB is a powerful trading software available on iOS, Android and desktop devices and suitable for both beginners and advanced traders. The xStation trading software gives you access to comprehensive charting and risk management tools. With the inbuilt trading calculator, you can easily estimate costs, profits or losses before opening a position, modify stop loss and take profit orders directly on the chart or close all positions with a click of a button. As one of the best online brokers in the UK, XTB also provides an extensive library of educational materials, including videos, webinars, and courses suitable for both beginners and experienced traders. When you sign up, you will have access to a dedicated account officer who will work with you to help you better understand your needs and how XTB operates.
It is free to open a trading account with XTB, and all users have access to a free demo account with £100,000 in virtual funds that you can use to practise trading and investing until you become confident enough to use real money. Deposits in GBP and EUR are free of charge, but withdrawals below £60 have a £12 processing fee. Stock and ETF CFD trading on XTB are commission free. Spreads and margins apply to other products. Inactive accounts attract a monthly fee of €10 (£9). Other fees apply. For more information, visit XTB. XTB does not offer an ISA or SIPP.
Please note: Contracts for Difference (CFDs) are leveraged products and carry a significant risk of loss to your capital, as prices may move rapidly against you, and you may be required to make further payments to keep any trades open. Between 74 and 89% of retail investor accounts lose money when trading CFDs. These products are not suitable for all clients. Therefore please ensure you fully understand the risks and seek independent advice.
DEGIRO is an award-winning investment broker and trading app that allows you to trade stocks, bonds, ETFs, options, futures, warrants, certificates, and more across 50 international exchanges. It offers tens of thousands of regulated financial instruments that enable investors to diversify their portfolios worldwide.
With DEGIRO, you can invest in up to 200 commission-free ETFs. This means you may not have to pay a dealing charge when you invest in just ETFs (terms apply). Dealing UK stocks costs £2.75 per deal, while US stocks cost €1 (~ £0.90) per trade. A currency conversion fee of 0.25% also applies to US stocks. To make sense of the charges, visit DEGIRO. DEGIRO does not offer an ISA or SIPP.
DEGIRO is suitable for beginners and advanced investors, and you can access the platform on any device via the web portal or mobile app. DEGIRO currently has over two million customers across 18 countries.
Capital at risk.
Saxo Markets is the UK division of Saxo Bank, a large European bank that allows you to invest in 60,000+ financial products from stock markets worldwide. With Saxo Markets, you can invest in UK and overseas stocks and shares, bonds, ETFs, forex, CFDs, futures, commodities and options.
Saxo Markets allows you to invest in one of two ways depending on your investing savviness: Beginner investors or those who prefer to choose a ready-made portfolio can select from one of the managed portfolios on offer where Saxo experts navigate the markets and manage your investments on your behalf. The average cost of this managed portfolio is 0.95% per year (including fund costs). Advanced or more confident investors can choose from the range of financial products on offer and build their portfolios themselves. Saxo Markets traders benefit from extensive charting with 50+ technical indicators, integrated trade signals, news feeds and risk-management features via the SaxoTraderGO platform. Advanced traders can access even more sophisticated trading features on SaxoTraderPRO, Saxo Bank’s desktop-only advanced trading platform.
Saxo Markets has different transaction fees grouped into trading tiers. If you plan to trade high volumes, you can upgrade your tier to get lower transaction fees. The Classic tier, which attracts the highest trading fees, costs 0.10% (min. £8) per deal for UK Stocks and US$0.02 (min. US$10) per deal for US Stocks. Other fees apply. Saxo Markets’ suite of products includes a Trading Account, Stocks and Shares ISA and SIPP.
Please note: Capital at risk. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Interactive Investor, commonly hailed as one of the best online trading platforms in the UK, is a subsidiary of wealth management giant Abrdn and the second-largest investment platform in the country. Also well known for its fixed monthly subscription fees (as opposed to annual percentage-based fees like most other investment platforms), Interactive Investor has been providing investment services and financial information to UK customers since 1995.
If you choose to invest with Interactive Investor, you will gain access to over 40,000 investment options, including UK and overseas shares, funds, investment trusts, and ETFs. This is the second-widest choice of UK and international investments offered by an investment platform in the UK. Interactive Investor allows you to build your portfolio in multiple ways depending on your investment goals, attitude to risk and personal preferences. Beginner investors or those who prefer ready-made investments can build their portfolios using Interactive Investor’s Quick-Start Funds, an easy way to start investing where you choose from six low-cost funds prepared by the team of experts at Interactive Investor. Advanced or more confident investors can choose from a wide range of funds and shares and build their portfolios themselves. Interactive Investor gives you access to 17 global stock exchanges, including exchanges in North America, Europe and Asia Pacific. These include markets such as the FTSE 100, FTSE 250, FTSE All-Share, S&P 500, NASDAQ, NYSE, Dow Jones and more. In addition to the above, Interactive Investor offers Japanese, Indian and Chinese shares in the form of American Depositary Receipts (ADRs).
Interactive Investor gives you a free trade every month, which you can use to buy or sell any investment. After that, trades usually cost £5.99. It also offers a free regular investing service that allows you to deposit as little as £25 a month towards your investments without paying a trading fee each time. For those investing £30,000 or less, Interactive Investor offers a cheaper plan called Investor Essentials that costs just £4.99 a month. This plan does not come with the monthly free trade. Interactive Investor also has lots of expert ideas, research and insights, which can be helpful when choosing investments. Interactive Investor’s services include a Trading Account, Stocks and Shares ISA, SIPP and Junior ISA.
Capital at risk.
AJ Bell is one of the UK’s largest online investment platforms, and its mission is to make investing as easy as possible for anyone. The platform offers thousands of investment options for the DIY investor, including shares, funds, bonds, investment trusts, ETFs, ETCs, and warrants.
There are multiple ways to get started with AJ Bell, depending on your risk tolerance and investing savviness. Beginner investors or those who prefer to choose a ready-made investment portfolio can get a little, or a lot, of help from AJ Bell’s specialists by selecting one of the investment ideas on offer. Investment ideas are diversified ready-made baskets of investments that you can select based on your personal preference and attitude to risk. There are eight total investment ideas, each built by a specialist team, and you can pick the right one for you depending on whether you are seeking to simply grow your money over time or receive an income whilst still growing your money. Expert investors can take advantage of the stock and fund screeners and complex instruments available on AJ Bell and build their portfolios themselves.
AJ Bell charges an annual platform fee ranging from 0.25% to 0% depending on the size of your portfolio. Dealing fees for buying and selling investments online are £1.50 for funds and £9.95 for shares (reducing to £4.95 if there were 10 or more online share deals in the previous month). AJ Bell’s products include a Share Dealing Account, Stocks and Shares ISA, Junior Stocks and Shares ISA, Lifetime ISA, SIPP and Junior SIPP.
Capital at risk.
Bestinvest is a UK low-cost investment platform that allows you to trade or invest in over 3,000 instruments, including shares, funds, ETFs, and investment trusts. With Bestinvest, you can build an investment portfolio in two ways depending on your personal preferences, goals and attitude to risk.
Beginners or those who prefer a ready-made investment can build their portfolio by selecting one of Bestinvest’s ready-made investment portfolios. These off-the-shelf style portfolios are created and managed by the team at Bestinvest and come with a carefully selected and diversified collection of investments. Once you have picked one, you do not need to do anything else. There are three ranges to choose from: Expert, Smart and Direct, depending on whether you want to maximise the returns for the risk you take, focus on cost-efficiency or focus on individual investments. The team at Bestinvest will walk you through the process of selecting a ready-made portfolio. Advanced or more confident investors can choose from a wide range of funds, shares, ETFs and ITs and build their portfolios themselves.
To start building your portfolio with Bestinvest, you can deposit a lump sum or set up a monthly savings plan (which allows you to automatically save or invest a set amount into your investment account every month). There are no set-up fees or fund dealing charges with Bestinvest. Bestinvest charges an annual platform fee ranging from 0.40% to 0% for DIY investing and 0.20% to 0% for ready-made investing. The dealing fee for buying and selling shares online is £4.95 per deal. Bestinvest’s suite of products includes a Stocks and Shares ISA, Junior Stocks and Shares ISA, General Investment Account, SIPP and Junior SIPP.
Capital at risk.
Hargreaves Lansdown, a FTSE 100 company and the UK’s largest investment platform, is the best share dealing account in the UK. Although not the cheapest, it compensates with unrivalled stock research and trading tools, prioritising long-term client relationships and financial security. There is almost no stock, fund or investment trust you cannot find on Hargreaves Lansdown, along with detailed information on fund composition, performance data and advanced charting. With Hargreaves Lansdown, you can access over 15,000 instruments, encompassing over 2,500 funds, UK and overseas shares, bonds, ETFs, ETCs, investment trusts and more.
With Hargreaves Lansdown, you can build your investment portfolio in three ways. You can pick your own investments to match your values and goals, select ready-made portfolios, or pay a financial adviser to choose investments for you. The ready-made portfolios can be used as all-in-one investments. Pick one from the different risk levels, and you are good to go. You will still have to monitor your portfolio as with any other investment. If you pay for financial advice, the specialist investment adviser will recommend a suitable portfolio of investments for your goals and ensure that your portfolio is cost-effective, well-balanced, diversified, and ideal for your stage in life. Advanced or more confident investors who want to pick their own investments can choose from a wide range of funds, shares and other investments and build their portfolios themselves.
Hargreaves Lansdown does not charge a platform fee on its Fund and Share Account but charges 0.45% (capped at £45) a year on its ISA and 0.45% (capped at £200) a year on its SIPP. It offers most products, including a Fund and Share Account, Stocks and Shares ISA, Lifetime ISA, Junior ISA, and SIPP. These services are intended for investors who are happy making their own decisions.
Please note: Your capital is at risk. The fees quoted here are not exhaustive. Other charges apply.
Freetrade, widely recognised as one of the best stock trading apps in the UK, is a mobile trading app that gives you access to thousands of UK and overseas stocks, ETFs, REITs, and investment trusts covering different sectors and markets worldwide. The Freetrade app can be accessed on iOS, Android and desktop devices and offers a slick and easy-to-use user interface and experience. The app is a great choice for both beginners and experienced investors.
With Freetrade, you can invest in fractional shares of even the most expensive US shares with as little as £2. Depositing, trading and withdrawing on Freetrade are commission-free (other charges may apply). FX rates apply to US stocks at the spot rate + 0.45%. To get the most out of Freetrade, you can choose from three subscription plans. The Basic Plan costs £0.00 per month and allows you to open a General Investment Account (GIA) and trade commission-free. The Standard Plan costs £4.99 per month and allows you to open a Stocks and Shares ISA in addition to your GIA. With the Plus Plan at £9.99 a month, you get a Self-Invested Personal Pension (SIPP) and a Stocks and Shares ISA in addition to your GIA. Dealing on Freetrade is commission-free irrespective of the subscription plan you choose. Freetrade’s suite of products includes a Stocks and Shares ISA, General Investment Account (GIA) and SIPP.
Promo: Get a free share worth £10 when you join Freetrade and fund your account with at least £50.
Please note: When you invest, your capital is at risk. The value of your investments can go down as well as up, and you may get back less than you invest. ISA rules apply. SIPP eligibility and tax rules apply. Free share terms and conditions apply.
If you’ve recently dipped your toes into the realm of investing, it’s only natural that you’d come across the oil industry – an economic powerhouse that has shaped nations, driven innovation, and created countless fortunes.
In this section, we’ll take a jaunt through the annals of oil history, meet the key players, and discover the importance of oil as an investment. Buckle up, and let’s dive into the world of black gold!
Before crude oil took centre stage, whale oil was the primary source of lighting and lubrication in the 19th century. However, as whales dwindled and the demand for oil surged, an alternative was needed. Enter Edwin L. Drake, an American businessman who struck oil in 1859 in Pennsylvania, paving the way for the modern oil industry.
As oil production gained momentum, the likes of John D. Rockefeller seized the opportunity, founding the Standard Oil Company in the United States in 1870. With aggressive expansion tactics, Standard Oil came to dominate the industry and inspired the creation of competitors like Royal Dutch Shell and British Petroleum here in the United Kingdom.
The global oil industry is a tightly-knit circle controlled primarily by seven multinational companies, affectionately dubbed the “Seven Sisters.” These are:
These giants wield enormous power, influencing production, supply, and pricing. As an investor, keeping a watchful eye on their activities can provide valuable insights into the oil market’s trajectory.
Few entities hold more sway in the oil market than OPEC and OPEC+. These powerful alliances not only shape oil prices but also influence the very fabric of the global economy. As an investor, understanding the motivations and dynamics of these groups is essential for navigating the oil market.
OPEC (Organization of the Petroleum Exporting Countries) is an influential collective that strives to stabilise oil prices and coordinate production among its members. Founded in 1960, OPEC has grown into a formidable force, with 13 oil-rich countries under its banner:
Recognising the potential for even greater market control, OPEC joined forces with ten non-OPEC countries in 2016, giving birth to the mighty OPEC+. This alliance includes heavyweight producers such as Russia and Kazakhstan, and their combined efforts have further solidified their grip on the oil market. Here are the OPEC+ members:
Crude oil is an essential component of the global economy, powering everything from transportation to manufacturing. Investing in oil can be a lucrative endeavour, as its price fluctuations offer ample opportunities for traders and investors to profit. However, as with any investment, there are risks and rewards to consider.
As a trader and stock market investor, it is important to understand the dynamics of the oil market, which is one of the most critical components of the global economy. In this section, we will delve into the three most important oil price benchmarks: WTI, North Sea Brent Crude, and Dubai Crude.
We will compare and contrast these benchmarks in terms of prices, types, origin, location, reserves, market trends, recent developments, and government regulations.
WTI is a benchmark crude oil primarily traded on the New York Mercantile Exchange (NYMEX). It is a light and sweet crude oil with a low sulphur content, making it easy to refine into gasoline and diesel fuel.
The origin of WTI is West Texas, home to the Permian Basin, the largest oil-producing region in the United States. It is traded and delivered in Cushing, Oklahoma, where it is stored in large tanks before being transported to refineries.
WTI is the most actively traded crude oil benchmark in the world, and its price is closely watched by traders and investors. In recent years, WTI prices have been influenced by a variety of factors, including the production levels of shale oil in the United States, OPEC production cuts, and geopolitical tensions in the Middle East.
In 2020, WTI prices experienced a historic drop, with prices falling into negative territory for the first time due to the COVID-19 pandemic’s impact on demand.
North Sea Brent Crude is a benchmark crude oil primarily traded on the Intercontinental Exchange (ICE) in London. It is also a light and sweet crude oil, although it has a slightly higher sulphur content than WTI.
The origin of Brent is the North Sea, which is situated between the United Kingdom and Norway. Brent crude oil is produced from four oil fields: Brent, Forties, Oseberg, and Ekofisk.
Brent is the second most actively traded crude oil benchmark in the world, after WTI. It is a crucial benchmark for the pricing of oil in Europe, Africa, and the Middle East. In recent years, Brent prices have been influenced by a variety of factors, including OPEC production cuts, geopolitical tensions in the Middle East, and the impact of the COVID-19 pandemic on demand.
In 2020, Brent prices also experienced a historic drop, falling to their lowest level in two decades due to the pandemic’s impact on demand.
Dubai Crude is a benchmark crude oil primarily traded on the Dubai Mercantile Exchange (DME). It is a heavier and sour crude oil, which means it has a higher sulphur content and is more difficult to refine.
The origin of Dubai crude is the United Arab Emirates, specifically the Dubai and Fateh oil fields. Dubai crude oil is an important benchmark for pricing oil in Asia and the Middle East.
Dubai crude oil is less actively traded than WTI and Brent, but it is still an important benchmark for the pricing of oil in Asia and the Middle East.
In recent years, Dubai crude prices have been influenced by a variety of factors, including OPEC production cuts, geopolitical tensions in the Middle East, and the impact of the COVID-19 pandemic on demand.
In addition to WTI, Brent, and Dubai, there are several other oil price benchmarks that are used to price oil in different regions of the world. These include the OPEC Reference Basket, Tapis Crude, Bonny Light, and Urals Crude, among others.
The OPEC Reference Basket is a weighted average of the prices of various crude oils produced by OPEC countries. Tapis Crude is a benchmark crude oil primarily traded in Singapore and is a light and sweet crude oil, while Bonny Light is a benchmark crude oil produced in Nigeria and is also a light and sweet crude oil. Urals Crude is a heavy and sour crude oil produced in Russia.
As a stock market investor, understanding the dynamics of oil prices is crucial for making informed decisions. Over the past 63 years, oil prices have experienced numerous peaks and troughs, with each era shaped by a unique set of events.
In this section, we’ll explore key moments in the history of oil prices, focusing on the last six decades and delving into the lessons traders can learn from them. So, settle in, and let’s embark on this thrilling voyage through the turbulent world of oil markets!
In the years leading up to the formation of OPEC, oil prices remained relatively stable. The West Texas Intermediate (WTI) crude oil price hovered around $2.50 per barrel. However, this period of tranquillity would soon be disrupted by the emergence of a powerful alliance.
The Organization of the Petroleum Exporting Countries (OPEC) was established in 1960 to coordinate and unify petroleum policies among its members. In the decade following its formation, the price of WTI crude oil began to rise gradually, reaching around $3.50 per barrel by 1970.
The Arab oil embargo of 1973-1974 was a watershed moment for oil prices. OPEC’s Middle Eastern members imposed an embargo in response to Western support for Israel during the Yom Kippur War. This supply disruption sent oil prices soaring, with WTI crude oil prices rocketing from $3.60 per barrel in 1972 to a staggering $12 per barrel in 1974.
The Iranian Revolution of 1978-1979 had a profound impact on oil prices. Amidst the chaos, Iran’s oil production fell dramatically, leading to a tightening of global oil supply. The price of WTI crude oil surged once more, reaching a peak of around $39 per barrel in 1980.
Throughout the 1980s, US President Ronald Reagan pursued a policy of deregulation in the oil industry. This move aimed to increase domestic production and reduce dependence on foreign oil. As a result, oil prices experienced a period of decline, with WTI crude oil prices falling to around $20 per barrel by the late 1980s.
The invasion of Kuwait by Iraq in 1990 triggered the First Gulf War, sending shockwaves through the oil market. Fears of supply disruptions caused oil prices to spike, with WTI crude oil prices briefly reaching around $41 per barrel in October 1990. However, the conflict’s resolution and subsequent increase in production led to a sharp decline in prices.
The global financial crisis in 2008 brought with it a surge in oil prices, driven by speculative trading and a weakening US dollar. At its peak, WTI crude oil prices reached an all-time high of $147 per barrel in July 2008. The bubble, however, soon burst, and prices plummeted as the world grappled with economic turmoil, dropping to around $30 per barrel by the end of the year.
In the last decade, the shale oil revolution has transformed the global oil market. Technological advances have made it possible to extract oil from shale, leading to a surge in US oil production. This has had a significant impact on oil prices, with the price of WTI falling from over $100 per barrel in 2014 to below $30 per barrel in early 2016.
The shale oil revolution has also led to a shift in the global balance of power. The United States has become a major oil producer, reducing its dependence on foreign oil. This has had geopolitical implications, with the US becoming less reliant on Middle Eastern oil.
The COVID-19 pandemic has had a profound impact on the global economy, and the oil industry has been no exception. As countries around the world implemented lockdown measures to contain the spread of the virus, demand for oil plummeted, leading to a major oversupply of oil and a sharp drop in prices. In April 2020, the price of WTI fell to negative territory for the first time in history, reaching a low of -$37.63 per barrel. This was a stark contrast to the price of WTI in January 2020, which was over $60 per barrel.
As the global economy has begun to recover, demand for oil has started to increase, and prices have rebounded somewhat. However, the pandemic has highlighted the fragility of the global oil market and the need for greater resilience in the face of shocks.
In 2022, Russia invaded Ukraine, causing global uproar. Western nations slapped Russia with sanctions, leading to uncertainty in oil markets. As a result, WTI crude oil prices skyrocketed. For example, on February 24, 2022, WTI crude surged from $90 to over $100 per barrel. This turmoil affected investors, making it essential to keep an eye on geopolitical events.
In short, the Russian-Ukraine conflict taught us that global politics can have a significant impact on oil prices, and understanding this relationship is crucial for budding investors in the energy sector.
As a trader and stock market investor, it’s essential to have a clear understanding of the factors that influence oil prices. This knowledge will not only help you make informed decisions but also provide you with a solid foundation for investing in the oil markets.
In this section, we’ll discuss eight key factors that affect the price of oil, using the West Texas Intermediate (WTI) as a benchmark. So, let’s dive in, shall we?
The basic economic principle of supply and demand is the most significant factor that drives oil prices. When demand for oil exceeds supply, prices tend to rise, and when supply outstrips demand, prices usually fall.
For example, during periods of economic growth or in colder months when people consume more energy, demand for oil typically increases, pushing prices higher.
Geopolitical tensions in oil-producing regions can have a significant impact on oil prices. Conflicts, political instability, or even the threat of war can disrupt the production and transportation of oil, thereby affecting the global supply.
In 2019, for instance, a drone attack on Saudi Arabia’s oil infrastructure caused a brief but noticeable spike in WTI prices.
Extreme weather events and natural disasters can also significantly affect oil prices. For example, hurricanes in the Gulf of Mexico can disrupt the region’s oil production, refining, and transportation.
In 2017, Hurricane Harvey caused considerable damage to the oil infrastructure in Texas, leading to a temporary surge in WTI prices.
As we’ve previously discussed, OPEC and OPEC+ play a crucial role in shaping oil prices. By adjusting production quotas and export restrictions, these powerful alliances can manipulate supply and, consequently, prices.
For instance, in April 2020, OPEC and its allies agreed to cut oil production in response to falling demand due to the COVID-19 pandemic. This decision contributed to the recovery of WTI prices in the following months.
Inventory levels can also impact the price of oil. High inventory levels indicate a surplus of supply, which can push prices down, while low inventory levels indicate potential supply shortages and can lead to price spikes.
As previously mentioned, in April 2020, the price of WTI fell to negative territory for the first time in history, reaching a low of -$37.63 per barrel. This was due to oversupply caused by the COVID-19 pandemic’s impact on demand for oil.
The US Energy Information Administration (EIA) releases weekly inventory data that traders and investors monitor closely.
Fluctuations in currency exchange rates can also affect oil prices. As oil is primarily traded in US dollars, a weaker dollar can make oil cheaper for countries using other currencies, potentially boosting demand and driving up prices. Conversely, a stronger dollar can have the opposite effect.
During the events of 2008, the weakening US dollar was one factor that contributed to the surge in WTI prices to an all-time high of $147 per barrel.
Speculation and market sentiment can also impact oil prices. Traders and investors may buy or sell oil futures contracts based on their expectations of future prices. Additionally, broader market sentiment, such as concerns about global economic growth or geopolitical tensions, can impact oil prices.
For example, during the COVID-19 pandemic, concerns about reduced demand for oil due to lockdowns and travel restrictions led to a sharp decline in oil prices.
Finally, technological innovations can also influence oil prices, particularly when they lead to increased production efficiency or the discovery of new reserves. The shale oil revolution in the United States is a perfect example, as advancements in hydraulic fracturing and horizontal drilling unlocked vast reserves of previously inaccessible oil.
This surge in production contributed to a significant decline in oil prices, with WTI prices falling from around $100 per barrel in 2014 to $26 per barrel in early 2016.
Deciding which oil shares to buy can be daunting for the first-time investor or trader, but it need not be. Below, we have summarised our top ten oil stock-picking methods for would-be traders.
Follow the steps below to learn how to pick oil stocks:
The initial step to picking oil stocks is to determine and establish clear goals for your portfolio. You need to ask yourself why you are trading oil stocks and state explicitly what you hope to achieve.
There are three key goals to consider, and you can focus on just one, two or a combination of all three. When picking oil stocks, you need to ask yourself if you are in it to:
Your goal determines your eventual investment strategy. For example, if your trading goal is to generate a regular income, you might be interested in oil stocks with high dividend yields. You might also consider bonds and real estate investment trusts (REITs) within the energy sector.
A trader whose goal is wealth preservation is naturally risk-averse and might prefer to invest in stable blue-chip oil company stocks. These include stocks on indices such as the Dow 30, S&P 500 or the FTSE 100.
Similarly, traders looking to grow wealth might focus on small to mid-cap oil stocks in their early growth years with promising financials and technicals. These types of stocks are usually riskier than their large-cap counterparts as they tend to be less liquid.
To become an excellent trader or investor, you must constantly research the markets and keep on top of the technicals and fundamentals of each oil stock you are trading.
The best places to find charts for technical analysis are on charting and trading websites such as TradingView, Investors Business Daily’s MarketSmith, Nasdaq and the London Stock Exchange.
The best places to find data for fundamental analysis, macroeconomic updates, earnings releases and analyst commentary include news sites such as CNBC, The Financial Times, and Investors Business Daily.
Twitter accounts and popular trading blogs such as @WatcherGuru, @unusual_whales, and @MarketWatch are also very helpful.
Additionally, email newsletters such as the daily one by Stocktwits are simply excellent.
Finally, at Koody, we recommend reading William J. O’Neil’s How to Make Money in Stocks before trading or investing in individual stocks.
Once an oil company completes its IPO, the share price will be determined by factors such as supply and demand. There are a variety of factors that affect the supply and demand for an oil company’s stock over time, including:
When you study oil stock price-volume charts, you discover patterns that help you predict price movements. According to William J. O’Neil, “it is the unique combination of finding stocks with big increases in sales, earnings and return on equity plus strong chart patterns revealing institutional buying that together will materially improve your stock selection and timing. The best professionals use charts.”
When reading charts, you want to focus on the daily, weekly, and yearly price-volume actions. There is a wide range of technical indicators and oscillators you can use when working with oil stock charts, including moving averages, stochastic oscillators, moving average convergence divergence (MACD), standard deviation, Bollinger bands, relative strength index (RSI), Fibonacci retracement, among others.
The global economy will grow and shrink over time. When the economy is growing, most sectors tend to do well. But when the economy is shrinking and things are not as rosy, only certain sectors continue to do well.
Industries that are more resistant to economic downturns, such as oil, tend to fare better during recessions. Understanding these cycles can help you decide what oil shares to buy and when.
If you can predict how the world will change in the next 10 to 20 years and what industries and companies are poised to benefit from this change, you can begin to invest in oil stocks accordingly.
For example, how will the global energy landscape evolve over the next 10 to 20 years? What changes do you anticipate in the oil industry as a result of climate change, technological advancements, and geopolitical shifts? Which oil companies stand to benefit most from these changes?
This type of analysis should form the basis behind every oil stock you choose to invest in. A thoughtful investor has a “story” that explains every decision behind a stock pick.
When picking oil stocks, it is crucial to look for leading companies with solid financials. Leading companies are not necessarily popular brands or household names but companies that are number one in their industry or sector from a fundamental and technical analysis standpoint.
Leading oil companies are the best-performing stocks according to the highest quarterly and annual earnings growth, highest return on equity, widest profit margins, strongest sales growth, and excellent price-to-earnings (P/E) ratios.
To identify oil companies with healthy financials, you might need a stock screener to filter based on specific criteria such as earnings per share (EPS) growth, revenue growth, market capitalisation, P/E ratio, sector, dividend yield, and other metrics. The best oil trading platforms in the UK will offer stock screeners as part of their in-house trading software or allow you to connect to advanced third-party trading software with stock screeners, such as TradingView.
When you start researching the oil markets, you will quickly come to see how much analyst forecasts and recommendations affect short-term share price movements.
While it is important to pay attention to analyst forecasts and commentary, you should not obsess over them but instead, try to form your own opinions.
Spend time reading macroeconomic and microeconomic news, company-specific news, trading blogs, and opinion pieces to better understand the oil markets. This, in addition to fundamental and technical analysis of an oil stock, should help you form your own opinion, create your “story”, and make a sensible purchase.
When picking oil shares, it is risky to invest in just one company. If the company gets into difficulty, you could lose all you invested. It is better to build a diversified portfolio.
Building a diversified portfolio means you should consider investing in multiple oil companies, across different industry segments and in various geographies. A combination of blue-chip oil stocks, high-growth companies, and dividend oil stocks across a variety of industry sectors and geographies provide the ultimate diversification for an oil stock portfolio.
A simple and easy way to diversify your oil portfolio is to invest in oil-focused mutual funds and ETFs. Mutual funds and ETFs save you the trouble of buying shares in multiple oil companies or worrying about building a diversified portfolio. They are also safer and cheaper than buying individual oil stocks since you share the risks and costs with other investors. Most people, including experienced investors, use funds when investing.
Once you’ve done all of the above and have your strategy in place, the key is to stick to it. Investing can be highly emotional at the best of times, and this is particularly true with an intense, high-paced approach such as margin trading.
It is important to review the success or failures of the strategy being implemented, but this should be done outside of trading hours when emotions can be somewhat removed from the process.
In conclusion, picking oil stocks can be a rewarding venture if you approach it with a clear strategy and focus on research, diversification, and discipline. By following these steps, even novice investors can build a successful oil stock portfolio and work towards their financial goals.
To trade oil stocks in the UK, you need to open a trading account and buy and sell oil company shares with brokers such as eToro, AJ Bell, and Interactive Investor.
Trading oil stocks can yield either profitable or unrewarding results, depending on your level of trading knowledge and aptitude as an investor. Thus, it is essential that you comprehend the inner workings of this particular market, including the potential risks and rewards, before venturing into it.
Follow the steps below to learn how to trade oil stocks:
This exciting new age of investing offers a wealth of opportunities, as well as challenges, for those looking to balance profits with social responsibility.
In this section, we’ll discuss environmental concerns, socially responsible investing, and emerging opportunities in the energy sector.
The oil industry has long been associated with significant environmental concerns, from greenhouse gas emissions to the devastating effects of oil spills. As climate change becomes an increasingly pressing issue, governments and consumers are pushing for a shift towards renewable energy sources, such as solar, wind, and hydroelectric power.
As an investor, it’s crucial to stay ahead of this trend and consider the long-term viability of oil stocks. For example, BP, a major oil and gas company, has been investing in renewable energy projects to reduce its carbon footprint and diversify its energy portfolio.
By keeping an eye on such initiatives, you can make informed decisions about which oil stocks are most likely to adapt and thrive in a changing energy landscape.
Socially responsible investing (SRI) involves selecting investments based on their environmental, social, and governance (ESG) performance. Many investors are increasingly prioritising SRI, seeking to align their portfolios with their values and contribute to a more sustainable future.
As a savvy investor, you may want to explore SRI funds or ETFs that focus on clean energy or companies with strong ESG performance. For example, the iShares Global Clean Energy ETF (INRG) invests in a diversified portfolio of clean energy companies, providing exposure to this growing sector while adhering to ethical considerations.
The energy sector is evolving rapidly, offering new opportunities for forward-thinking investors. Companies developing innovative technologies, such as hydrogen fuel cells, electric vehicles, and battery storage, present potential investment options as the world moves towards cleaner energy solutions.
One such example is Tesla ($TSLA), the electric vehicle manufacturer that has made significant strides in battery technology and renewable energy solutions. By investing in companies like Tesla, you can not only support the transition to a more sustainable energy future but also potentially benefit from the growth in this emerging sector.
Investing in oil can be profitable due to its high demand and its role as a global energy source. However, it’s essential to consider factors such as market volatility, geopolitical events, and environmental concerns when deciding to invest in oil. Diversification is key, so consider allocating a portion of your portfolio to oil investments rather than putting all your eggs in one basket.
In the UK, you can invest in oil through various methods, such as purchasing shares of oil companies, investing in exchange-traded funds (ETFs), trading oil futures and options, or even investing in physical oil assets like oil wells and royalties. Each method has its own set of risks and potential rewards, so it’s crucial to choose the one that best aligns with your investment goals and risk tolerance.
To start trading oil, you’ll need to open an account with a broker that offers access to oil markets, such as eToro, AJ Bell, and Saxo. Familiarise yourself with the different types of oil instruments, like spot prices, futures, and options, and ensure you understand the mechanics and risks involved before diving in.
Oil can be a risky investment due to its price volatility, which can be influenced by factors such as geopolitical events, natural disasters, and changes in supply and demand. To mitigate risks, consider diversifying your investments and using proper risk management strategies, such as stop-loss orders and position sizing.
You can invest in oil with little money by purchasing shares of oil companies or investing in oil ETFs. Some brokers, such as eToro and InvestEngine, offer fractional shares and ETFs, which allow you to invest in a portion of a share rather than the full share price. This can make investing in oil more accessible to those with limited funds.
In the UK, you can trade crude oil through financial instruments like spot prices, futures, options, CFDs, and spread bets. Choose a broker that provides access to these markets, such as Saxo and DEGIRO, and ensure you understand the mechanics and risks involved before trading.
Oil trading can be profitable, but it also carries risks due to the volatile nature of oil prices. Proper risk management, discipline, and a well-thought-out trading strategy are essential for success in oil trading.
Here are the best oil trading platforms in the UK:
The most common types of oil to invest in are Brent Crude and West Texas Intermediate (WTI) crude. Both are widely traded and have significant price influence in the global oil market. Another common type of oil to invest in is the Dubai/Oman crude, produced in the Middle East and a key reference for oil prices in Asia.
UK oil and gas investments can be profitable, but it is essential to consider factors such as market volatility, geopolitical events, and environmental concerns when deciding to invest. Perform thorough research on the specific companies and projects you’re considering and assess their potential for growth and profitability.
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