There are 4 main ways to invest in oil from Australia, but each has it's own unique risk profile and level of exposure to the price of crude oil.
For example, you can buy an oil ETF (exchange-traded fund) which tracks the price of crude oil, or buy stock in an oil-related company, which will offer less direct exposure to the price of oil.
Despite the world slowly moving away from fossil fuels, the oil industry still remains relatively attractive for investors.
Like many commodities, the price of oil fluctuates a lot and traders see this volatility as a chance to make money. That volatility has been especially pronounced in recent months, with ongoing tensions in the Middle East disrupting flows through the Strait of Hormuz, a critical chokepoint that handles around 20% of the world's seaborne oil supply. Geopolitical risk is once again a key driver of oil prices.
Given its continued importance in global trade and transportation, many investors are also attracted to oil-related stocks and companies.
In fact, some of the world's largest companies by market capitalisation are oil companies. This includes Saudi Aramco, which is the largest non-tech company in the world, as well as Exxon Mobil, Chevron, Shell and PetroChina.1
Oil market roundup
Crude oil fell 24.08% last month. As the lifeblood of the global economy, this commodity is always closely watched and these rapid movements show just how fast energy markets can turn. That recent drop really dragged down the broader short-term picture, with crude oil falling 25.13% over the past three months.
Despite the rough patch things look a lot brighter when you zoom out. Year-to-date crude oil rose 37.3%. It's been an absolute rollercoaster over the last 52 weeks.
1. Invest in oil company stocks
A simple way to invest in oil is through buying oil company stocks.
In Australia, this means companies like BHP (BHP), Woodside Petroleum (WPL) or Santos (STO). In the US, Exxon Mobil and Chevron are the largest oil stocks.
While oil stocks don't give you direct exposure to the price of crude oil, their performance is often correlated with global oil prices, but will also be influenced by the company's own financial performance and fundamentals.
In order to buy oil stocks, you'll first need to sign up with an online broker or share trading platform.
You can pick and choose a range of stocks and cash out when you want.
It's a simple, accessible and versatile way to access the market.
Oil stocks are volatile, which means there's an opportunity to make high profits.
Many oil stocks are well established in Australia and pay dividends.
Cons
Large businesses are involved in things such as refining, which don't actually benefit from higher oil prices, so oil company stocks might not profit from rising oil prices.
Oil stocks are regarded as being more volatile than other sectors, which means that they're high risk.
2. Invest in oil ETFs
Exchange-traded funds (ETFs) are a way to invest in multiple companies or assets with a single investment.
There are two main types of oil ETF: those that track the performance of oil companies, and those that track the price of crude oil.
An ETF that tracks the price of crude oil is arguably the easiest way for investors to get direct exposure to oil without having to physically buy it, or trade it via futures or CFD markets.
In Australia, we have just one ETF that tracks the price of oil, the BetaShares Crude Oil Index (ASX: OOO), but we do have several resources and commodity sector ETFs that are exposed to oil.
ETFs can be purchased and sold in a manner similar to stocks; however, they can allow investors to reduce risk by investing in the broader sector, rather than individual companies.
Like with stocks, you'll need to sign up with a share trading platform in order to invest in oil ETFs.
ETFs allow for instant diversification across the oil industry at a low price.
ETFs have a better track record of providing safe, more reliable growth.
You will get pretty close to the average return for the sector, especially if you choose an ETF with a lot of oil companies.
Cons
By placing your money in an ETF, you relinquish some control over the split of assets.
Assets within the ETF could be a lag on your returns.
3. Trade oil futures
The futures market allows you to speculate on future oil prices through derivatives contracts. With the traditional method of futures trading, you buy a contract to purchase physical oil at a future date at a specified price, which you can in turn sell.
In Australia, futures are more often traded through a commodities CFD broker where you never actually trade physical oil.
Instead, you're trading a contract that you make a profit or loss on depending on the price change of the underlying asset. This means you can profit from both negative and positive movements in the price of oil.
Futures and CFDs are extremely volatile and riskier than other investment options. Because they use leverage, both profits and losses are magnified, so it's best suited to more experienced traders.
The 2 most widely traded oil markets in the world are the West Texas Intermediate futures (US benchmark) and Brent crude futures (global benchmark).
Pros and cons of oil futures
Pros
Oil futures are among the most actively traded future on the market and hence among the most liquid.
Cons
All futures are volatile investments and oil is no exception. No one can predict with any degree of certainty how the price of oil will fluctuate.
Futures expire on a certain date. If you fail to exercise them prior to expiry, they become worthless.
A Master Limited Partnership (MLP) is a specialised type of business that predominantly exist in the energy industry, including oil.
It has the tax benefits of a private partnership (profits are taxed only when investors actually receive distributions) but is traded on the stock market like any other public company.
Typically, these companies own the pipelines that carry the commodity from one place to another.
The Alerian MLP Index is the most popular way to track the performance of MLPs, and trades on the New York Stock Exchange (NYSE).
Pros and cons of MLPs
Pros
Companies can offer a very attractive dividend payment.
MLPs can easily be purchased through financial advisors or online brokers.
Cons
MLPs are subject to general market risk and low energy demand.
Stock prices don’t necessarily move in lock step with the price of oil.
We currently don't have that product, but here are others to consider:
Looking for other options? Check out these similar products.
How we picked these
Finder Score for share trading platforms
We've scored over 30 share trading platforms assessing them for their core features, fees, customer experience and accessibility. Our experts give each platform a score out of 10.
Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
We currently don't have that product, but here are others to consider:
Looking for other options? Check out these similar products.
How we picked these
Trading CFDs and forex on leverage is high-risk and you could lose more than your initial investment. It may not be suitable for every investor. Refer to the provider’s PDS and consider the risks before trading.
Key takeaways
Oil is one of the world's most important commodities and is essential to global transportation and commerce.
The price of crude oil is quite volatile and therefore popular with traders.
It's possible to get exposure to the price of crude oil without having to physically buy it.
What are the risks of investing in oil?
While long-term investments in oil companies can be highly profitable, investors should understand the risk factors before making investments in the sector. These risks include the following:
Price volatility: Large price fluctuations can occur daily due to unpredictable influences such as supply and demand.
Dividend cuts: If a company is unable to earn enough revenue to fund payments to investors, dividends can be cut.
Oil spill risk: Accidents such as oil spills can cause a company's share price to drop significantly. In 2010, BP saw a decline of over 55% to their stock in the wake of the Deepwater Horizon oil spill.
Frequently asked questions
This price is constantly changing, but you can check the current price as well as recent market trends by searching on Google.
Crude oil is a volatile commodity that fluctuates in price all the time. While this makes it attractive to some traders, it also makes it a riskier investment.
Saudi Aramco is the world's largest publicly-traded oil company and the largest non-tech stock in the world.
The United States Oil Fund is an exchange-traded commodity product (ETP) offered by United States Commodity Funds, a US company specialising in managing exchange-traded commodity funds (ETFs).
Important information: Powered by Finder.com.au. This information is general in nature and is no substitute for professional advice. It does not take into account your personal situation. This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for most investors. You do not own or have any interest in the underlying asset. Capital is at risk, including the risk of losing more than the amount originally put in, market volatility and liquidity risks. Past performance is no guarantee of future results. Tax on profits may apply. Consider the Product Disclosure Statement and Target Market Determination for the product on the provider's website. Consider your own circumstances, including whether you can afford to take the high risk of losing your money and possess the relevant experience and knowledge. We recommend that you obtain independent advice from a suitably licensed financial advisor before making any trades.
Charlie Barton is a publisher at Finder. He specialises in banking and investments products. Charlie has a first-class degree from the London School of Economics, and in his spare time enjoys long walks on the beach.
See full bio
Kylie Purcell is an experienced investments analyst and finance journalist with over a decade of expertise in a wide range of financial products, including online trading platforms, robo-advisors, stocks, ETFs and cryptocurrencies. She is a sought-after commentator and regularly shares her insights on the AFR, Yahoo Finance, The Motley Fool, SBS and News.com.au. Kylie hosts the Investment Finder video series and actively contributes to the investment community as a judge and panellist. She holds a Master of Arts in International Journalism, a Graduate Diploma in Economics, and ASIC-recognised certifications in securities and managed investments.
See full bio
Kylie's expertise
Kylie
has written
188
Finder guides across topics including:
You've heard of CommSec but how does it stack up to the likes of IG, CMC Invest and other players in the market?
Important information about this website
Finder is a comparison service. We do not compare every product or every provider in the market.
We make money through commercial arrangements with some of the providers on this site. Products marked 'Sponsored', 'Promoted', 'Featured' or 'Advertisement' appear as a result of a commercial arrangement.
Our editorial content, product reviews and any 'Top Pick' designations are prepared independently of these commercial arrangements.
The default order of products in our tables can be influenced by commercial arrangements. You can re-sort or filter using the controls above each table.
Some content on this site may be generated or supported by AI tools. You should verify details directly with the provider.
Finder is one of Australia's leading comparison websites. We are committed to our readers and stand by our editorial principles.
Our comparison service does not include every product or every provider in the market. Some product issuers offer their products under multiple brands or through associated companies. Where we can, we identify the underlying issuer so you can compare like with like, but you should always check with the provider directly to confirm which brand you are dealing with.
Finder is a comparison website and an intermediary. We are not a product issuer and we do not provide personal financial or credit advice. When you click a link to a product, or apply for a product through our site, you deal directly with the product issuer. We may receive a referral fee, commission or other payment from the issuer if you click through, apply or take out a product. We describe these arrangements in more detail under 'How we make money' below.
Product features, fees, terms and eligibility criteria are set by the product issuer and may change. We rely on information supplied by issuers when we present product details on our site. Before you apply for or take out any product, you should confirm the details directly with the issuer.
We earn revenue from Finder in four principal ways:
Referral fees and commissions. When you click a product link, complete an enquiry form or apply for a product through our site, we may receive a referral fee, commission or other payment from the product issuer. We may also receive payment based on the volume of leads or conversions we send to an issuer.
Sponsored placements. Products marked 'Sponsored', 'Promoted', 'Featured' or 'Advertisement' appear as a result of a commercial arrangement between Finder and the issuer. These labels always indicate a paid placement. We do not use them for editorial choices.
Display advertising. Banner advertising, newsletter advertising and similar display ads on our site are paid by advertisers.
Content sponsorship. Some articles, videos and social media posts are sponsored by an issuer and are clearly labelled as such.
Our editorial opinions, product reviews and any 'Top Pick' designations are prepared independently of these commercial arrangements. A 'Top Pick' is an editorial choice made by our writers and editors based on the criteria described on each comparison page. A 'Top Pick' is not a personal recommendation and does not mean the product is appropriate for your circumstances.
If you would like to know whether we have a commercial arrangement with a specific product issuer, please contact us.
When products are grouped in a table or list, the default order can be influenced by commercial arrangements we have with product issuers. In some categories, sponsored or featured products appear in the top positions of the table by default, and are always labelled as such.
Other factors that influence default order include price, fees and features, and (where relevant) our editorial view of the product.
You can re-sort every comparison table using the controls above the table. You can filter by product features that matter to you. The order you see after re-sorting or filtering is not influenced by commercial arrangements.
Some content on this site is generated or supported by artificial intelligence tools, including our AI-powered assistant FinderBot. AI-generated content may contain errors. Please verify important information directly with the product issuer before making a financial decision. For more information about FinderBot, see the FinderBot Terms of Use and FinderBot Privacy Collection Notice.
Please read our website terms of use and privacy policy for more information about our services and our approach to privacy.
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.
