How to Invest in Oil: A Beginner’s Guide to Getting Started

If you’ve ever winced at the gas pump or watched headlines about oil prices fluctuating wildly, you may have wondered: Should I be investing in oil? The truth is, oil remains one of the most powerful commodities in the global economy — and knowing how to invest in oil can open the door to strategic diversification, inflation protection, and even long-term gains.

Whether you’re just starting out or looking to round out your portfolio, this beginner-friendly guide breaks down everything you need to know about how to invest in oil, from the types of oil investments to the risks involved — and how to manage them.

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Why Oil Is a Powerful Investment Opportunity

Oil is more than just fuel for your car — it’s the backbone of modern infrastructure. From plastics and packaging to aviation and agriculture, global demand for oil touches nearly every sector. That makes it a compelling commodity for investors looking to:

• Diversify their portfolios

• Hedge against inflation

• Capitalize on global energy demand

Unlike some assets, oil offers exposure through multiple channels — stocks, ETFs, futures and more — each with its own pros, cons and risk profile.

Types of Oil Investments

Let’s break down the most common ways investors get exposure to oil:

1. Stocks of Oil Companies

Investing in oil company stocks is one of the most direct and accessible methods. These companies fall into three main categories:

• Upstream (Exploration & Production): Companies like ConocoPhillips (COP) and BP (BP) focus on finding and extracting crude oil.

• Midstream: These handle transportation and storage. Kinder Morgan (KMI) and Enbridge (ENB) are good examples.

• Downstream: Think refineries and gas stations — Marathon Petroleum (MPC) and Phillips 66 (PSX) fit the bill.

Pros:

• Often pay dividends (some are “dividend aristocrats”)

• Easier to understand and trade via stock brokerages

Cons:

• Stocks can be volatile, especially for upstream companies

• Sensitive to oil price swings and geopolitical events

2. Oil ETFs and Mutual Funds

Oil-focused ETFs and mutual funds bundle multiple oil-related assets into a single investment, reducing risk through diversification.

Popular options include:

Benefits:

• Lower risk than individual stocks

• Easy to buy/sell like regular stocks (for ETFs)

• Exposure to multiple companies and sectors

Drawbacks:

• Management fees may apply

• You may still be affected by oil price volatility

3. Oil Futures and Options

For seasoned investors, oil can also be traded directly as a commodity via futures contracts. These are agreements to buy or sell oil at a set price on a future date.

Example Scenario: You buy a futures contract to purchase oil at $75 per barrel. If the price rises to $90, you profit. If it drops to $65, you take the loss.

Pros:

• High potential for short-term gains

• Useful for hedging or speculation

Cons:

• High-risk, not beginner-friendly

• Requires brokerage accounts with margin approval

• Can lead to significant losses if prices move against you

How to Invest in Oil Stocks

Step 1: Research Oil Companies

Look into the company’s operations (upstream, midstream, downstream), financial health and dividend history.

Step 2: Use a Brokerage Account

Most online brokerages allow you to buy oil stocks just like any other equity.

Step 3: Track Performance

Use platforms like Yahoo Finance or Bloomberg to monitor performance, earnings reports and industry trends.

How to Invest in Oil ETFs

Step 1: Choose Your ETF

Do you want broader energy exposure or focus solely on oil? Funds like XLE focus on large-cap energy stocks, while VDE casts a wider net.

Step 2: Understand the Fund’s Holdings

Check the fund’s top holdings, fee structure, and historical performance.

Step 3: Buy Through Your Brokerage

ETFs are traded on major exchanges just like stocks.

Oil Futures: Is It Right for You?

How Oil Futures Work

Futures allow you to speculate on the price of oil — without owning it physically. They’re mainly used by professionals and institutions, but retail traders can access them through certain brokers.

Why They’re Risky

• You’re leveraged, meaning small price swings can result in big gains — or losses.

• Futures require in-depth market knowledge and risk tolerance.

Pro Tip: Beginners are better off exploring ETFs and stocks first before venturing into futures.

The Risks of Investing in Oil

Like any commodity, oil carries its share of risk. Here’s what to watch out for:

• Price Volatility: Oil prices can swing wildly due to supply-demand imbalances, OPEC+ decisions or natural disasters.

• Geopolitical Events: Tensions in oil-producing regions can sharply impact prices.

• Regulatory and Environmental Risk: Policy changes or environmental restrictions can affect oil production and profitability.

Tips for Successful Oil Investing

Diversify Your Portfolio: Don’t put all your eggs in one barrel. Mix oil investments with other asset classes to spread risk.

Set Clear Goals: Are you investing for income, growth, or hedging? Knowing your “why” helps shape your “how.”

Stay Informed: Follow sources like EIA.gov and OilPrice.com to monitor market conditions and forecasts.

Start Small: Especially with riskier tools like futures, begin with a small portion of your portfolio.

Final Take to GO: Is Oil a Good Investment for You?

Learning how to invest in oil can open up new opportunities for portfolio growth, income, and diversification. Whether you choose to invest in oil stocks and ETFs, or test the waters with futures, the key is to understand your risk tolerance, investment goals and the nature of the commodity itself.

Start with what you’re comfortable with — whether that’s dividend-paying stocks like ExxonMobil or diversified ETFs like XLE — and build your oil investing strategy step-by-step.

FAQ

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• What is the best way to invest in oil for beginners?

  • Oil ETFs or large-cap stocks are ideal for beginners due to their liquidity and lower risk.

• How much money do I need to start investing in oil?

  • You can start with as little as $50 to $100 if you’re buying shares of ETFs or fractional stocks.

• Can I invest in oil without owning physical oil?

  • Yes! Stocks, ETFs and futures all allow you to invest without handling the commodity.

• What factors affect oil prices?

  • Oil prices are influenced by global demand, OPEC+ production levels, geopolitical tensions and currency fluctuations.

Information is accurate as of March 21, 2025.

Editorial Note: This content is not provided by any entity covered in this article. Any opinions, analyses, reviews, ratings or recommendations expressed in this article are those of the author alone and have not been reviewed, approved or otherwise endorsed by any entity named in this article.

This article originally appeared on GOBankingRates.com: How to Invest in Oil: A Beginner’s Guide to Getting Started