How to Invest in Oil

Those watching the oil market and looking for ways to invest in this commodity know that prices have experienced a high level of volatility since soaring past US$140 per barrel in 2008.

One recent curveball came in form of the COVID-19 pandemic, which put oil prices under significant pressure in 2020, even pushing them to an unprecedented negative level at one point. The spread of COVID-19 disrupted global economies and caused a “decline in energy demand without parallel,” points out Deloitte in its 2020 mid-year oil and gas industry outlook.

“In an industry used to the highs and lows of economic and commodity price cycles, 2020 pose(d) great challenges to oil and gas companies,” the accounting and consultancy firm states in the report.

Oil rebounded significantly in 2021 as demand surged on the back of widespread economic recovery. After starting the year off at the US$54 level, prices reached a three year high in October, settling at US$83.65.

Further adding to the momentum, Russia's invasion of Ukraine in early 2022 set the oil bull market on fast-forward as sanctions curtailed the movement of supply for one of the world's largest oil producers. Oil prices surged past US$120 in March 2022, becoming a major driver of an inflationary environment that has led central banks around the world to raise interest rates.

Later in the year, with signs of an economic slowdown and possible recession weighing on demand, prices began sliding to close out the year US$76 level. Even so, many oil producers still managed to rake in "record profits in 2022," according to Deloitte, "providing ample cash flow to fund their strategies in 2023." Oil prices have traded in the US$70 range for most of 2023 so far.

Analysts believe demand for oil will not slow any time soon, but remain cautious — although the short-term outlook for the oil market has its challenges, long-term demand is still looking positive.

These circumstances have left many market participants wondering if oil is a good bet. It's important for all investors to do their own due diligence, but for those ready to jump in, here's a brief guide on investing in oil.

This is an updated version of an article originally published by the Investing News Network in 2015.

Don’t forget to follow us @INN_Resource for real-time news updates!

Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.