How to invest in oil in Australia in 2021 - finder.com.au

How to invest in oil in Australia

Investing in oil is simpler than you might think, this guide explains the best ways to do it.

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Stock markets have been volatile in 2020. Following the impact of coronavirus, a further market meltdown took place on Monday 9th March, triggered by a dispute between major oil exporters Russia and Saudi Arabia over oil production levels.

Russia had turned down an offer by oil exporting group OPEC to cut supply to cope with dropping demand. In response, Saudi Arabia said it would pump more oil (and in so doing cut prices further). This exchange sparked fears of a price war.

As the current climate shows, oil can be very volatile. Its value is driven by supply, political and environmental factors, and the demand from high-energy-driven nations.

For some investors, falling prices are an opportunity. For those willing to take the risks, there is the potential to grab discounted oil stocks that are still good value - and will ideally rise. So how do you actually invest in it? In Australia there are four main options for investing oil: Buy oil stocks, Invest in oil ETFs, Trade oil futures, Invest in MLPs.

Invest in oil company stocks

A simple way to invest in oil is through stocks of oil companies such as BHP (BHP), Woodside Petroleum (WPL) or Oil Search (OSH). Generally speaking, as the cost of oil changes, so will the value of these companies - although this isn't guaranteed and depends on numerous other factors.

Developing an understanding of the energy cycle, the landscape in the industry and the impact of price fluctuations will help you determine valuable oil-related assets.

Accessing the market this way is simple because shares can be purchased with an online broker or financial advisor.

Pros
  • You can pick and choose a range of stocks and cash out when you want
  • 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 don’t necessary move lock-step with the price of the commodity
  • Oil stocks are regarded as being more volatile than other sectors which means that they're high risk

Compare brokers to buy oil shares


Invest in oil ETFs

Exchange traded funds (ETFs) give access to a whole load of assets, without having to put all of your money into individual firms. The process is pretty much the same as buying stocks, but instead you're buying an oil "ETF", which typically tracks the performance of oil stocks or the price of oil itself.

Commodity-based oil ETFs allows you to track and profit from the price of oil while industry sector ETFs allow you to track the stock price of oil companies.

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. If you need to brush up on ETFs, check out our guide on ETFs.

In Australia we have just one ETF that tracks the price of oil (OOO), however we do have several resources and commodity sector ETFs that are exposed to oil:

  • BetaShares Crude Oil Index ETF-Currency Hedged, Synthetic (OOO)
  • BetaShares Global Energy Companies ETF - Currency Hedged (FUEL)
  • VanEck Vectors Australian Resources ETF (MVR)
  • SPDR S&P/ASX 200 Resource Fund (OZR)
  • BetaShares S&P/ASX 200 Resources Sector ETF (QRE)
Pros
  • ETFs allow for instant diversification across the oil industry, at a low price.
  • ETFs have a better track record with providing safe, more reliable growth.
Cons
  • By placing your money in an ETF, you relinquish some control over the split of assets.

Compare brokers to buy oil ETFs


Trade oil futures

The futures market allows you 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. This allows you to profit from oil price fluctuations.

In Australia, futures are more often traded through a commodities CFD broker where you never actually trading physical oil. Instead, you're trading a contract that agrees to profit or loss depending on the price change of the underlying asset. This means you can profit from oil CFDs regardless of whether prices are rising or falling.

Futures and CFDs are extremely volatile and riskier than other investment options. Because they use leverage, both profits and losses and magnified, so it's best suited to more experienced traders.

The two most widely traded oil markets in the world are: West Texas Intermediate futures (US benchmark) and Brent crude futures (global benchmark).

Pros
  • Oil futures are among the most actively traded future on the market and hence the 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 pice of oil will fluctuate.
  • Futures expire on a certain date. If you fail to exercise them prior to expiry they become worthless.

Compare brokers to buy oil futures


Invest in MLPs

Primarily existing in the gas and oil industry, A Master Limited Partnership (MLP) is a tax-advantaged corporate structure. It combines the tax benefits of a partnership – profits are taxed only when investors actually receive distributions – with the liquidity of a public company.

Typically, these companies own the pipelines that carry the commodity from one place to another.

Risks to MLPs could come from a slowdown in energy demand, environmental hazards, commodity price fluctuations, and tax law reform.

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 necessary move lock-step with the price of oil

Compare brokers to invest in oil stocks and ETFs

Data updated regularly
Name Product Standard brokerage fee Inactivity fee Markets International
eToro Share Trading (US stocks)
US$0
US$10 per month if there’s been no login for 12 months
US shares
Yes
Zero brokerage share trading on US stocks with trades as low as $50.
Join the world’s biggest social trading network when you trade stocks, commodities and currencies from the one account.
Superhero share trading
$5
No
ASX shares, ETFs
No
Pay zero brokerage on all Australian ETFs.
Trade ASX stocks with a flat $5 commission fee and a low minimum investment of just $100.
Bell Direct Share Trading
$15
No
ASX shares, mFunds, ETFs
No
Exclusive: New customers who open an account with Bell Direct through Finder will pay no brokerage fees on the first five stock or ETF trades until April 30, 2021 (T&Cs apply).
Bell Direct offers a one-second placement guarantee on market-to-limit ASX orders or your trade is free, plus enjoy extensive free research reports from top financial experts.
IG Share Trading
Finder Award
IG Share Trading
$8
$50 per quarter if you make fewer than three trades in that period
ASX shares, Global shares
Yes
$0 brokerage for US and global shares plus get an active trader discount of $5 commission on Australian shares.
Enjoy some of the lowest brokerage fees on the market when trading Australian shares, international shares, plus get access to 24-hour customer support.
CMC Markets Stockbroking
$11
No
ASX shares, Global shares, mFunds, ETFs
Yes
$0 brokerage on global shares including US, UK and Japan markets.
Trade up to 9,000 products, including shares, ETFs and managed funds, plus access up to 15 major global and Australian stock exchanges.
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Important: Share trading can be financially risky and the value of your investment can go down as well as up. “Standard brokerage” fee is the cost to trade $1,000 or less of ASX-listed shares and ETFs without any qualifications or special eligibility. If ASX shares aren’t available, the fee shown is for US shares. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.

Compare brokers to invest in oil futures

Data updated regularly
Name Product Minimum Opening Deposit Minimum Opening Deposit Commission - ASX 200 Shares Available markets Platforms
eToro CFD
US$200
US$200
No commission
Forex, Shares, Indices, Cryptocurrencies, Commodities, ETFs
eToro Trading Platform
Disclaimer: Trading CFDs and forex on leverage is high-risk and losses could exceed your deposits.
Join the largest social trading network in the world.
Plus500 CFD
$200
$200
No commission
CFD on Forex, Commodities, Cryptocurrency, Indices, Shares, Options and ETF's
Plus500 Trading Platform
Disclaimer: This is a CFD provider. Trading CFDs on leverage is high risk and losses could exceed your deposits.
Trade CFDs on Australian and International shares, indices, cryptocurrencies, commodities and more.
IG CFD broker
$0
$0
0.08% with $7 minimum
Indices, FX, Shares, Commodities, Cryptocurrency, ETPs, Options, Interest Rates, Bonds
MetaTrader 4
ProReal Time
IG Trading Platform and Apps
L2
Disclaimer: Trading CFDs and forex on leverage is high-risk and losses could exceed your deposits.
Trade from over 15,000 markets with Australia's leading service for CFD trading and forex.
IC Markets CFD (True ECN Account)
US$200
US$200
0.1% per side
ASX shares, global shares, indices, commodities, forex, cryptocurrencies
MetaTrader 4
MetaTrader 5
cTrader
Disclaimer: Trading CFDs and forex on leverage is high-risk and losses could exceed your deposits.
Trade 230+ different products with fast execution under 40 milliseconds on average.
City Index CFD
$0
$0
0.08% with $5 minimum
ASX shares, 4,500 global shares, indices
MetaTrader 4
At Pro
Advantage Web
Disclaimer: Trading CFDs and forex on leverage is high-risk and losses could exceed your deposits.
Trade CFDs on indices, FX, global & Australian shares and commodities, plus access other markets such as metals, bonds and interest rates.
Blueberry Markets CFD Trading
US$100
US$100
$20 per month subscription plus 2% of trade size
Indices, ASX200 Shares, Commodities, Cryptocurrency
MetaTrader 5
Disclaimer: Trading CFDs and forex on leverage is high-risk and losses could exceed your deposits.
Bottom of the market fees on forex, CFDs and commodities with 24/7 quality customer service.
CMC Markets
$0
$0
0.09% with a $7 minimum
ASX shares, 25+ global exchanges, treasuries, indices
CMC Next Generation CFD, MetaTrader 4
Disclaimer: Trading CFDs and forex on leverage is high-risk and losses could exceed your deposits.
Share CFD and forex ideas with other traders and take your strategy to the next level with over 100 technical indicators and charts on CMC’s mobile-friendly Next Generation platform.
Pepperstone CFD
$200
$200
No commission
ASX shares, global shares, indices, cryptocurrencies, commodities
MetaTrader 4
MetaTrader 5
cTrader
Disclaimer: Trading CFDs and forex on leverage is high-risk and losses could exceed your deposits.
Trade stock indices on the global market, via Pepperstone's MetaTrader 4 and cTrader client terminals.
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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.

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:

  • 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 dividend 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

Disclaimer: 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 all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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