If you want to get in on the oil boom, then you need to know how to buy oil. The price of oil naturally fluctuates based on season and market conditions, but according to the report from the Paris-based International Energy Agency, long-term supply and demand looks very favorable on oil. Luckily, buying oil is not just for seasoned traders; it can be as easy as following these very simple steps.
- Pick your type of investment. There are many ways for you to buy oil and profit from it, but it is your first job to choose what method you want to use. The methods of buying oil vary and come with different degrees of risk. They range from direct investment as a commodity to indirect investment as an equity to an oil company.
- Buy oil directly. You can buy oil futures and/or oil future options directly. Buying oil futures and future options involves a great deal of risk, because they are extremely volatile. You need to do a lot of research before using this method. This method is designed for seasoned traders.
- Buy oil indirectly. You can buy oil indirectly by buying equities of some oil companies, such as BP, Exxon Mobile and Shell. The shares of these companies tend to fluctuate with oil prices, as they are profiting from it.
- Consider alternative methods. There are many other methods you can use to buy oil. Before making your decision, you should also consider commodity-based exchange-traded funds, such as the U.S. Oil Fund (USO). It trades like a stock, so you can buy a share of it on the open market. Oil-based mutual funds may also be a good choice, but you may need substantial capital to invest in them.
Don't restrict yourself into limited areas; there are many ways you can buy oil, so keep a open mind at all times. Remember, the commodities sector is highly volatile; invest with great caution.