Did you know that crude oil prices have rallied up nearly 500% higher since the coronavirus pandemic?
This once in a lifetime level of volatility in the oil market has also attracted institutional mutual funds who have helped lift the whole energy sector causing oil stocks and oil ETFs to rally higher as well.
If you’re looking to get in on this market action, this How to Invest in Oil UK – Beginner’s Guide will most certainly help!
In a step by step process, we cover how to invest in crude oil with the best brokers, the best strategies to navigate oil market volatility, the best oil companies to invest in and much, much more.
How to Invest in Oil UK Quick Tutorial
If you’re wondering how to invest in oil UK with little money then follow these quickfire steps:
1. Choose an oil broker. We recommend eToro, which is authorised and regulated by the UK FCA and offers a good range of oil-related products including crude oil, oil stocks and oil ETFs.
2. Open an account. Opening an account with eToro is a breeze and can be done in minutes. Just fill in a few personal details and you’re good to go.
3. Deposit funds. The first time minimum deposit is just $200 (£142) which you can do through bank wire transfer, debit/credit card or via e-wallets.
4. Invest in oil! You’re now ready to invest in oil. Find your market and hit trade!
Job done! You’ve just invested in oil using the world’s biggest social trading platform that has more than 17 million users.
Step 1: Choose an Oil Investment Platform
One of the most important parts to consider when investing in oil is to make sure you are using the right trading platform.
After all, your platform is your gateway to investing in the oil market so it needs to be safe, secure and user-friendly.
Below, we discuss some of the best oil investment platform providers for you to choose from.
1. eToro – Overall Best Platform to Invest in Oil
eToro is the world’s largest social trading platform with more than 17 million users. Investors can have peace of mind knowing they are authorised and regulated by the UK FCA, CySEC and ASIC.
With eToro, you can access more than 2,400 global markets including crude oil, oil stocks, oil ETFs and other asset classes such as currencies, indices and commodities. What is great about eToro is the fact you can trade these asset classes 100% commission-free.
While trading the price of oil is 100% commission-free, there are some other fees to take into consideration. The spread is the difference between the buy price and sell price is one fee nearly-all brokers will charge. If you hold a trade open overnight, there is also a small fee to do so which every CFD broker will charge.
Both the spread and overnight fees are low with eToro and very competitive across the industry. This is important so you can keep the most amount of your profits in your back pocket! If you choose to invest in oil stocks, then there are no overnight fees and they are still 100% commission-free!
One of the best features of the eToro platform is that you can find other profitable traders and investors and copy what they are doing at the click of a button! Through the Copy People option, you can view the performance of different traders and if you like it you can get their exact trades copied onto your own account.
Another great feature is the CopyPortfolio section. These are ready-made portfolios, designed by experts, for you to invest in and capitalise on the big themes affecting the financial markets. For example, some CopyPortfolios include Oil Worldwide, Drone Tech, 5G Revolution, Mobile Payments and many others.
With so many markets and different product offerings, the platform is a great way to build diversification in your portfolio when investing in the oil market. Better yet, you can open an account in just a few minutes!
Your capital is at risk.
2. Capital.com – Best Platform for Energy Sector & Oil
Capital.com is a UK-based broker that is authorised and regulated by the UK FCA and CySEC. They now have more than 360,000 clients trading with them in the UK alone, with more than 780,000 worldwide.
With Capital.com, users can access more than 3,000+ global markets including a variety of different types of oil and instruments from the energy sector. This includes access to oil futures, natural gas, Brent crude oil, WTI crude oil, gasoline and carbon emissions, as well as oil stocks like Exxon Mobil and oil ETFs.
Clients are offered a good range of different trading accounts too. This includes access to CFD accounts and Spread Betting accounts. Both of these accounts allow traders to trade on margin. This means you can control a large position with a small deposit, which is held as margin to open the trade.
Better yet, Capital.com offers zero commission for opening and closing trades, as well as zero commission for deposit and withdrawals! The broker is mainly compensated through the spread of an instrument, as well as any overnight fees for trades held beyond 10 pm GMT.
The broker offers a state of the art, web-based trading platform that is simple to use. The layout is clean and user-friendly and traders are offered other platforms as well, such as MetaTrader 4 or TradingView.
Having access to a full range of energy sector products, including oil, is great for the diversification of your portfolio. Fortunately, accounts can be opened in just a few minutes with only a £20 minimum deposit!
Your capital is at risk.
Step 2: Pick an Oil Investment
Now that you have chosen the right oil investing platform, it’s now time to decide which oil investment you will make. There are quite a few options to choose from too!
Oil CFDs, Futures & Options
As mentioned above, there are a variety of ways to speculate on the price of oil. Some methods are relatively easy and some are quite complex, as you’ll learn below.
One of the easiest methods to trade oil is by using a CFD broker such as eToro or Capital.com. With CFDs, you are merely speculating on the price of the market going up or down and do not own the underlying asset.
All you need to do is press the buy button if you think the market will move higher or press the sell button if you think the market will go lower. This is just one of the benefits of CFDs – you can trade long and short and profit from rising and falling markets.
Another benefit of trading oil CFDs is that you can use leverage to control a bigger position using a small deposit. In the screenshot above, taken from the eToro platform, it shows a $1,000 investment in oil gives you an exposure of $10,000. This means you have leveraged your position 10 times your investment!
With a CFD broker, you can also set stop-loss orders to minimise any losses if the market moves against you, as well as take profit orders to bank any gains if the market goes in your favour.
Oil futures are contracts to exchange a certain number of barrels of oil at a fixed price, on a fixed date in the future. When oil futures trading, every contract has an expiry date which is usually a month but can also be three months.
These contracts are typically traded through a futures exchange like the New York Mercantile Exchange (NYMEX) and are mainly used by commercial companies to lock in the price of the barrels of oil they want to buy. However, the leverage is not as high as what CFD brokers offer.
An oil options contract gives you the right, but not the obligation, to buy or sell a fixed amount of oil at a fixed price on a fixed date in the future. The two types of options available are called ‘calls’ and ‘puts.’
If you believe the price of oil would go up, you would buy a call option. If you believed the price of oil would go down, you would buy a put option. Oil options contracts are also affected by time decay and volatility making options trading one of the more complex ways to invest in oil.
Oil Stocks & ETFs
While some investors may choose to invest in oil directly using CFDs, Futures or Options, another popular way is by investing in oil shares, oil ETFs or mutual funds. After all, the companies that drill for oil would likely to do well when oil prices rise.
Companies within the energy sector offer investors direct exposure to the oil market with certain other benefits. Some of the major energy giants like Exxon Mobil, BP and Shell pay very good dividends for purchasing shares.
This means the investor can potentially profit from the capital gain in the stock price, as well as any income payments from the dividend stocks payout which usually takes place quarterly. With the eToro trading platform, you can even purchase oil stocks 100% commission-free, as shown below.
Oil ETFs are also another way to gain exposure to the oil market or energy sector as a whole. For example, the United States Oil Fund is one of the most popular oil ETF trading products available. The aim of this fund is to gain exposure to the American oil market without having to purchase any futures contracts.
There are other oil ETFs that act more like a mutual fund where they invest in a basket of different oil stocks. For example, the Energy Select Sector SPDR offers investors exposure to the major companies in the US energy market. The largest holdings in the fund include Exxon Mobil, Chevron, ConocoPhillips and 23 other energy sector companies.
The eToro trading platform offers you a full range of oil companies to invest in.
Your capital is at risk.
Step 3: Research Oil Investment
Now you know more about the variety of ways you can start oil trading it is also wise to know as much about the oil market as possible. This is important in finding out where the opportunities are but also what the risks are.
Be sure to explore the sections below to build your knowledge on all things related to oil investing!
Different Types of Oil
When learning how to invest in crude oil, it’s important to know the different types oil blends there are. The two most commonly traded are WTI crude oil and Brent crude oil.
WTI (West Texas Intermediate) crude oil is an oil blend that is processed in the United States and is traded on the New York Mercantile Exchange (NYMEX). This type of oil is extracted from Texas, Louisiana and North Dakota oil fields and then pipelined to Oklahoma.
Brent crude oil is extracted from the North Sea and pipelined to Scotland. It’s traded on the Intercontinental Exchange (ICE) and is used as a benchmark for oil prices in Europe, Africa and the Middle East.
Price of Oil
The price of oil blends such as WTI and Brent are in US dollars. When looking at the price of oil, you are essentially looking at the price of one barrel of oil in US dollars. For example, at the time of writing the price of WTI crude oil is $63.10 per barrel.
When learning how to invest in crude oil, being able to determine future price fluctuations will come in handy. The price of oil is affected by many different factors, such as:
- OPEC production. The Organization of the Petroleum Exporting Countries (OPEC) consists of 14 oil-rich nations led by Saudi Arabia. They meet every month to discuss how much oil they will produce and sell in the open market. If they cut supply, prices typically rise and vice versa.
- Geopolitics. The oil market is highly politicised due to tensions that can flare-up in the Middle East. Even the coronavirus pandemic caused issues in the price of oil, as barrels of oil were sitting in mainland US during lockdowns causing a stockpile and a crash in the oil price.
- The US Dollar. As WTI and Brent crude oil are priced in US dollars, any large movements in the currency can have an impact on the price per barrel.
Is Oil a Good Investment? Oil Investment Analysis
Since the near 90% crash in oil prices during the coronavirus pandemic and subsequent 500% rally back up, many investors are questioning if oil is now a good investment.
According to analysts at JP Morgan, commodities have started a new supercycle, as prices soar in agriculture, metals and energy. Only four supercycles have developed in the past 100 years, with the last one peaking in 2008.
Many analysts are now calling for higher prices in oil over the long-term, citing a variety of reasons, including an increase in oil demand due to:
- A successful coronavirus vaccine rollout that will increase international travel and mobility.
- Central bank stimulus, which is likely to increase infrastructure spending and manufacturing.
- Energy companies that are moving towards renewable energies, meaning less oil will be drilled overall, elevating the price of the current supply.
If oil prices can get anywhere close to the highs achieved in 2018 of ~$77, it would mark a 60% increase in the price of oil from where it opened at the beginning of 2021. A move towards the previous highs of 2018 of ~$113, would mark a 130% increase in prices.
Oil does have a fair amount of volatility as it is affected by global demand and geopolitical factors so it’s important to know some of the risks of oil investment too.
Your capital is at risk.
Risks of Oil Investment
When thinking of how to invest in oil UK, it’s important to also think about the risks involved, as the oil market as a high degree of volatility. Some risks include:
- Economic risk. Oil markets can be affected by shocks in supply or demand which can come about from weather patterns, geopolitical tensions and black swan events. For example, when oil demand stopped abruptly during the pandemic, oil prices crashed to 30-year lows.
- Company risk. If you are choosing oil companies to invest in, then there are company news announcements that could hurt the stock price. A scandal, accounting mismanagement or negative earnings results can cause some investors to bail.
- Political risks. Geopolitical tensions can cause wild fluctuations in oil prices. A lot of oil comes from the Middle East where tensions can easily flare up between different countries causing disruptions to supply routes.
- Climate change risks. More and more oil companies are trying to move away from drilling beneath the earth to find more climate-friendly sources of energy. Many companies are also losing big investors as mutual funds move away from energy companies that leave a large carbon footprint.
Oil Investment Strategies
There are a variety of strategies investors can use to capitalise on the volatility of the oil market. Many of the strategies will depend on your chosen style of investing, such as if you prefer short-term or long-term investing. Let’s have a look at a few:
Oil investing using fundamentals
Longer-term investors tend to analyse the fundamental picture of what could happen over many months or years. These type of investors are more likely to focus on oil companies to invest in, rather than buying oil directly.
As energy sector companies tend to pay out high dividends, it’s a great strategy that combines different revenue streams – the appreciation in the share price and the dividend income paid out quarterly.
Oil trading using technical analysis
Shorter-term investors, such as those day trading may choose to speculate on the price direction of the oil market using CFDs, as they provide the opportunity to profit from rising and falling markets using leverage.
In this instance, most traders would study price charts and technical analysis indicators to help identify short-term turning points in the market. While it is a highly specialised skill, day trading oil is popular due to the volatility of the market.
Investing in oil using CopyPortfolios
A much newer way to capitalise on the oil market is to use the eToro CopyPortfolio feature. These are ready-made investment portfolios managed in-house by eToro’s investment committee. They’re also super simple to access and can provide a good level of diversification.
For example, in the eToro platform, there is a GoldenEnergy CopyPortfolio. This is a portfolio that comprises investments in the energy, oil, gold and mining sectors.
You can easily view the different investments in the portfolio and choose to invest at the click of a button!
Your capital is at risk.
Step 4: How to Invest in Oil on eToro
The section below goes through a step by step process on how to invest in oil in the eToro trading platform. It’s our platform of choice because it is regulated by the FCA, CySEC and ASIA and provides commission-free trading!
Step 1: Open an Account
You can open an account with eToro in just a few minutes. To create an account you just need to fill in your personal details and accept the Terms and Conditions.
Once this has been completed, you will be redirected to the eToro platform. To start depositing funds and trading, you will need to fill out an application form so the broker knows more about you and your experience.
Step 2: Upload your ID
As a globally regulated broker, eToro will need to verify your identity and address for standard KYC and AML procedures.
The documents can be uploaded on the platform and only two are needed:
- A valid passport or driver’s licence
- A bank account statement or utility bill issued within the last six months
Step 3: Deposit funds in your eToro oil Wallet
You can deposit funds easily by clicking the Deposit Now button on the bottom left of the platform. You can also create an eToro Wallet where you can send and receive crypto assets from other wallets and transfer crypto assets on the platform.
Deposit methods include:
- Bank wire transfer
- Debit/credit card
Step 4: Choose your oil investment and invest!
From the eToro platform, you can search for the asset class you want to trade on. This could be an oil stock, oil ETF or simply trading WTI crude oil directly via CFDs.
Once you’ve chosen your market then simply click the Trade button.
The oil trading ticket allows you to input the amount you want to invest and whether you would like to place a stop-loss and take-profit order. It also details any fees for the position, such as overnight fees. Click Open Trade to complete your transaction!
How to Invest in Oil UK – Conclusion
In this How to Invest in Oil UK – Beginner’s Guide we’ve gone through some of the best platforms to invest in oil, the different types of products available to invest in and how to do so.
Whether you are trading oil directly via CFDs, oil stocks or oil ETFs, many analysts are very optimistic about the future of the oil market. In fact, JP Morgan believes we are now in a commodity trading supercycle – only the fifth one in the past 100 years.
To be able to capitalise on this trend, having access to the right oil broker and platform is essential. For us, eToro ticks a lot of boxes as it is highly regulated and offers 100% commission-free trading. You can open an account in minutes and see for yourself!
eToro – Best Broker to Invest in Oil UK
Your capital is at risk.