Various methods exist when it comes to how to invest in oil and oil-related energy investments. Historically, one of the most conventional oil investments involved oil exploration, where investors leased or purchased land that could potentially be drilled for oil deposits.
Nevertheless, this traditional oil investment option required a large capital outlay and offered low liquidity. As a result, it was often not an appropriate oil investment for someone with a small number of funds or who required a more liquid place in which to invest their capital.
How to invest in oil in the modern era has changed considerably due to advances in investment instruments.
For example, some of the most popular oil investment instruments are the oil-related futures and options contracts traded on a major commodity exchange. Investing in these oil contracts involves opening a commodities futures trading account with a reputable commodities futures broker.
A substantial variety of oil-related futures contracts are available to investors such as Light Sweet Crude Oil, West Texas Intermediate or WTI Crude Oil, Brent Crude Oil, Heating Oil, Gasoline, and Ethanol. In addition, some energy investors might also wish to trade Natural Gas (Henry Hub) futures, and those who wish to trade in reduced amounts can do so in Light Sweet Crude Oil and Natural Gas futures.
For those investors who are more comfortable operating in the stock market, another way how to invest in oil involves purchasing the equity of companies that specialize in producing or refining oil products. Such stocks might include those of oil exploration companies, large oil drillers, oil refiners, and oil product distributors, which can all benefit from the growing demand for oil. In addition, a range of oil-related Exchange Traded Funds or ETFs exist with differing exposures to oil.
Finally, those investors who can open a forex trading account with an online forex broker might be pleased to find that the broker offers trading in spot crude oil or some other oil-related product. Such contracts are typically easy to trade using a forex trading platform and can often be executed in small m2inimum transaction amounts and using significant leverage ratios. This could suit investors with fewer funds to play with.