A naturally occurring petroleum produce, crude oil is made up of hydrocarbon fossil deposits and numerous organic materials. A fossil fuel, oil is refined to produce industrial products like diesel, gasoline and other types of petrochemicals.
Because it is non-renewable, dependence on this commodity relies on what is left of the global supply, therefore making it an expensive commodity that features price volatility dependent on world demand.
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The Crude Oil Market
The worldwide oil industry is one of the biggest on the planet. Every day, it pumps more than 70 million barrels of crude from underneath the Earth’s core. For example, if the price per barrel is around $70, that puts the global oil trade at a staggering $2.5 trillion every year. Putting that in perspective, that's even larger than a combination of all the markets of the other raw metals and is ten times the scope of the gold market.
Because of the paramount importance of oil in driving the world economy and industries, it is one commodity investors should look closely into.
History of Oil
Oil was first unearthed by the Chinese sometime around 600 B.C. and distributed in bamboo-made pipelines. Other ancient uses of oil can be traced back to ancient Greek to which historian Herodotus told of its use to build asphalt roads in the ancient city of Babylon—now present-day Iraq.
During the industrial age of the 19th century, the new oil economy was born when new deposits was discovered in Pennsylvania in the 1850s and Texas in 1901. Technological advancements in siphoning fossil fuel came in the early 20th century as major gas companies like the Standard Oil, Saudi Aramco, Royal Dutch Shell and the British Petroleum were founded.
Largest Oil Companies
According to latest figures, here are the largest oil producers in the world:
- China Petroleum & Chemical Corp
- PetroChina Co. Ltd
- Saudi Arabian Oil Co. (Saudi Aramco)
- Royal Dutch Shell Plc
- BP Plc
- Exxon Mobil Corp
- Total SE
- Chevron Corp
- Marathon Petroleum Corp
- PJSC Lukoil
Ways to Invest in the Crude Oil Market
Like with other commodities, one can invest in this commodity in a variety of ways. While you can easily purchase a barrel likening to owning a bar of gold, there are more practical choices of investing on it.
- Futures Contracts: This choice gives investors direct exposure to this commodity. A futures contract is an agreement to buy or sell a certain amount of commodity—in this case, barrels of oil—at a predetermined value, on a predetermined date. When futures are bought, a contract is agreed upon between the seller and the buyer to secure a margin payment covering a percentage of the overall price of the contract.
Major contracts that serves as benchmark for oil futures are the New York Mercantile Exchange (NYMEX), West Texas Intermediate (WTI), the North Sea Brent Crude and the Intercontinental Exchange (ICE).
- Exchange-Traded Funds (ETFs) and Mutual Funds: If you want someone else—like seasoned traders—to take control of your investment, you can invest in oil-related ETFs. ETFs and Mutual funds are essentially like a basket full of stocks you can invest on all at once. The difference between the two are ETFs are passively managed and traded throughout the day while Mutual Funds are actively managed and traded at the close of trading day.
- Stocks: Another way on investing in the oil market is by buying stocks of companies engaged in oil refining and distribution. Please note the different types of oil companies as follows:
- Upstream oil and gas companies: these are companies involved in exploring locations around the planet for oil. An example of a popular E&P company is the ConocoPhillips (NYSE: COP)
- Midstream companies: These are companies engaged in transporting, processing and storing natural gas, crude oil, natural gas liquids and other petroleum products. Enterprise Products Partners (NYSE: EPD) is one such major midstream company.
- Downstream companies: These are companies involved in refining crude oil into other products such as petrochemicals and fuel. Philips 66 (NYSE: PSX) is one such large downstream company.
- Integrated Companies: These are the companies taking cared of the supply chain. Some integrated companies like Chevron (NYSE: CVX) and ExxonMobil (NYSE: XOM) also have upstream and downstream capabilities as well.
- CFD Trading: If you want a seamless trading experience, then try using one of those social trading app like the eToro trading platform. First, it provides an easy method to engage in CFD trading. Contracts for difference (CFD) provides the price of the CFD is the difference between the value of the commodity at the time of buying and its current price. This is a good option to get exposure on commodities without having to purchase an underlying asset.
How to Start CFD Trading of Oil?
Sign up on a CFD trading platform such as eToro to open an account and deposit your fund. Investing on commodities through the eToro's CFD trading platform doesn't require any storage fees since you won't be trading any physical assets.
How to Trade Oil on eToro?
- Create an account on eToro / Log-in your account for existing users.
- Click "Discover".
- Select "Commodities".
- Choose “OIL”.
- Select BUY or SELL.
- Key in your desired amount to invest or the number of crude oil units you want to trade.
- Review and set the stop loss, leverage, and take profit parameters.
- Select “Open Trade”.
Ready to trade crude oil with eToro?
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