Investing in oil
Oil remains one of the most important commodities in the global economy. It fuels transportation, supports industrial production and plays a central role in energy markets. Because of its global relevance and price movements, oil is widely followed in financial markets by investors looking for exposure to the energy sector.
Interested in investing in oil? Here is what you need to know.
What is oil?
Also referred to as ‘black gold’, oil is the most traded commodity on the market, and for the time being, our world economy is unable to run without it. It’s a natural resource used to produce fuels such as petrol, diesel and jet fuel, as well as materials like plastics and chemicals. It’s extracted from underground reservoirs and refined into usable products.
Because oil is widely used across industries, it’s closely linked to global economic activity. When economies grow, demand for oil tends to increase. When economic activity slows, demand may fall.
Oil prices are mainly driven by supply and demand. Production decisions by major oil-producing countries, geopolitical developments and global consumption patterns all play a role. In recent years, oil prices have shown significant volatility due to factors such as supply disruptions and changing demand expectations.
Reasons to invest in oil stocks
Oil stocks have seen renewed interest in recent years as inflation has risen and geopolitical tensions, such as the war in Ukraine and Iran, have disrupted supply. These factors have contributed to higher oil prices, allowing many oil companies to generate strong profits.
| Product name | ISIN |
|---|---|
| SHELL PLC | GB00BP6MXD84 |
| REPSOL S.A. | ES0173516115 |
| TOTALENERGIES SE | FR0000120271 |
| OCCIDENTAL PETROLEUM CORP | US6745991058 |
| EXXON MOBIL CORP. | US30231G1022 |
Investing in oil stocks gives you exposure to companies involved in the exploration, production and distribution of oil. Oil remains a key energy source worldwide, especially for transportation and industrial use. Despite the growth of renewable energy, global demand for oil continues to play an important role in the economy.
Oil stocks are often influenced by changes in oil prices. When oil prices increase, the revenues and profitability of oil companies can improve, which may be reflected in their share prices.
In addition, many large oil companies generate stable cash flows and may distribute part of their earnings through dividends. This can make them relevant if you’re looking for income alongside exposure to the energy sector.
Risks to invest in oil stocks
Oil stocks come with risks and may not be suitable for every investor.
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Price volatility
Oil prices can change rapidly due to shifts in supply and demand, geopolitical tensions, or broader economic developments. Even small imbalances can lead to significant price swings.
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Geopolitical risk
Conflicts or disruptions in key regions can impact global supply and trigger sudden price spikes or declines.
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Operational and regulatory risks
Oil companies may face production challenges, environmental regulations, and changes in government policies that can affect performance.
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Energy transition risk
Energy transition risk: The shift towards renewable energy sources may impact long-term demand for oil, potentially influencing the sector over time.
Investing in Oil ETCs
In addition to individual stocks, you can invest in oil through exchange-traded commodities (ETCs). These products are designed to track the price of oil, typically through futures contracts, rather than investing in physical oil. Because of this structure, the performance of oil ETCs is closely linked to oil price movements. However, factors such as futures roll costs and market conditions can affect returns.
Oil ETFs provide a different type of exposure. Oil ETFs track companies operating in the oil and gas industry. This means their performance may be influenced by both oil prices and company-specific factors. Learn more about oil ETFs here.
| Product name | ISIN |
|---|---|
| Wisdomtree WTI Crude Oil 3X Daily Lev | IE00BMTM6B32 |
| WisdomTree WTI Crude Oil | GB00B15KXV33 |
| WisdomTree WTI Crude Oil 3x Daily Short | XS2819844387 |
| WisdomTree WTI Crude Oil 2x Daily Leveraged | JE00BDD9Q840 |
| WisdomTree Brent Crude Oil 3x Daily Leveraged | IE00BMTM6D55 |
Risks of investing in oil ETCs
Oil ETCs have a different risk profile compared to individual stocks.
Because many ETCs track oil prices through futures contracts, their performance may differ from the spot price of oil over time. Factors such as futures roll costs and market conditions can affect returns.
Some ETCs use leverage or inverse strategies. These products can increase exposure to price movements and can lead to higher losses.
Their performance over longer periods may differ from the underlying commodity.
ETCs are also subject to market risk and, depending on their structure, may carry counterparty risk.
Before investing, it is important to understand how these products work and the risks involved. Consider your knowledge and experience when making investment decisions.
Investing in oil
through DEGIRO
At DEGIRO there are several ways to invest in oil. We have a wide range of company shares from the oil industry. In addition, you can also invest in oil-related ETFs and ETCs. Some of these products can be found in our ETF Core Selection, which includes over 1,000 ETFs, ETCs and ETNs on Tradegate for just € 1 per trade. Currency, external product and spread costs may apply. See the ETF Core Selection.
For advanced investors, it is possible to invest in oil through futures. At DEGIRO, you can invest in futures on a number of affiliated derivatives exchanges. You will find all the futures contracts we offer on our platform under the 'Products' tab when you choose 'Futures'. Please, keep in mind that you can lose more than your initial investment. Carefully consider your risk appetite before investing.
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FAQs
Oil stocks are shares of companies involved in the exploration, production, refining or distribution of oil. When you invest in oil stocks, you invest in companies whose performance is often linked to oil prices and global energy demand.
You can invest in oil stocks by purchasing shares of oil and gas companies listed on stock exchanges. On our platform, you can search for these companies and place an order like you would for any other listed share.
Another way to gain exposure is through ETFs or ETCs that track the broader energy sector or oil prices, respectively.
Oil stock prices are influenced by several factors, including:
- The global oil price
- Supply and demand dynamics
- Geopolitical developments
- Company performance and costs
- Broader market conditions
For example, disruptions in supply or rising demand can push oil prices higher, which may impact oil-related shares.
When you invest in oil stocks, you buy shares in individual companies. Their performance depends on oil prices as well as company-specific factors.
Oil ETFs typically track a group of energy companies or oil-related indices. This can offer broader diversification compared to investing in a single stock.
Oil ETCs are designed to track the price of oil directly, often through futures contracts.
Oil ETFs usually track a basket of companies in the energy sector. This means ETFs are influenced by both oil prices and company performance, while ETCs are more directly linked to the commodity itself.
Crude oil prices have a direct impact on oil companies. When oil prices rise, companies may generate higher revenues and profits, which can support share prices.
When oil prices fall, the opposite can happen. However, company performance is also influenced by factors such as production costs, strategy and market conditions.
Note:
Investing involves risks. You can lose your invested funds. This is not investment advice. Consider your knowledge and experience when making investment decisions.
Investing involves risk of loss.