How to invest in oil in Australian in 2020

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.

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.

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.

There are four main options for investing in oil:

  • Buy oil stocks
  • Buy oil ETF units
  • 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 lots of 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.
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.

Compare brokers to buy oil shares


Invest in oil ETFs

ETFs are another option worth considering. 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.

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

Purchasing commodity-based oil ETFs is a direct method of owning oil. ETFs can be purchased and sold in a manner similar to stocks. They allow investors to minimise risk, while taking advantage of the performance and general popularity of a particular sector. Oil ETF investors can avoid the risk of exposure to single stocks that fluctuate based oil prices.

In Australia there are several resources-themed ETFs that are exposed to oil company stocks and the price of oil. These include:

  • VanEck Vectors Australian Resources ETF (MVR)
  • SPDR S&P/ASX 200 Resource Fund (OZR)
  • BetaShares S&P/ASX 200 Resources Sector ETF (QRE)
  • BetaShares Global Energy Companies ETF – Currency Hedged (FUEL)
  • BetaShares Crude Oil Index ETF-Currency Hedged, Synthetic (OOO)
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


Invest in oil futures

This is the most direct way to purchase the commodity without literally purchasing barrels of oil. In Australia, futures are purchased through a commodities CFD broker – many which are available online. You are buying a contract to purchase oil at a future date at a specified price.

Futures are extremely volatile and riskier than other investment options. You have to be right on the timing and price movement.

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

Name Product Standard brokerage fee for ASX shares Standard brokerage for US shares Inactivity fee Currency conversion fee Markets
IG Share Trading

AUD 8 or
0.1%

USD 10 or
2 cents per share

$50 per quarter if you make fewer than three trades in that period.

0.50%

ASX shares
Global shares
Forex
CFDs
Margin trading

Special offer: Earn up to 10,000 Qantas Points when you start trading on a new IG Share Trading account. T&C applies.
Enjoy some of the lowest brokerage fees on the market when trading Australian shares, international shares, forex and CFDs, plus get access to 24-hour customer support.

CMC Markets Stockbroking (Classic account)

AUD 11 or
0.1% for first 10 trades monthly

USD 19.95 for
up to $5000 shares

$15 per month if you make no trades in that period.

Up to 0.60%

ASX shares
Global shares
Forex
CFDs
Margin trading
Options trading

Access a broad range of investment products from Australia and overseas.
Take advantage of IPOs and trade shares, warrants, options and CFDs listed across the ASX, SSX and Chi-X, and other major global exchanges, including US, Canada and UK markets.

Bell Direct Share Trading (Silver account)

AUD 15 or
0.1% for first 10 trades monthly

N/A

$0

N/A

ASX shares

Offer: For a limited time, get a custom deal based on your trading preferences when you switch to Bell Direct.
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.

ANZ Share Investing

AUD 19.95

AUD 59

$0

0.60%

ASX shares
Global shares
Margin trading
Options trading

Earn 1 Qantas Point per AU$3 spent on brokerage fees on certain instruments.

Access Morningstar reports, company announcements and and live pricing via ANZ’s share investing platform. Available for desktop and mobile.



Compare brokers to invest in oil futures

Name Product
Plus500 CFD

AUD 100

100

No commission

ASX shares, global shares, indices, options, ETFs

Plus500 Web Trader

CFDs are complex financial products and traders are at high-risk of losing all of or more than their initial investment.
Finder exclusive offer: Open a new trading account and receive a welcome bonus of AU$110 when you deposit your first $370 and enter the bonus code “Special200”. T&C’s apply.
Trade Australian and international CFDs on shares, forex, indices, commodities and more.

eToro CFD

USD 50

50

No commission

ASX shares, global shares, indices, cryptocurrencies, commodities, ETFs

eToro Trading Platform

CFDs are complex financial products and traders are at high-risk of losing all of or more than their initial investment.
Join the largest social trading network in the world.

AxiTrader CFD

USD 0

0

$0 for standard account, USD$7 per round trip for Pro account

Forex pairs, Metals, Commodities, Index CFDs

MetaTrader4, MetaTrader4 Next Gen, Psyquation, AutoChartist, WebTrader, Axi-One ECN

CFDs are complex financial products and traders are at high-risk of losing all of or more than their initial investment.
AxiTrader uses the popular MT4 trading platform along with several free add-ons. Live chat, email and phone support available 24 hours a day, Monday to Friday.
Important: AxiTrader is undergoing a review by the Administrative Appeals Tribunal into a recent decision by ASIC to suspend its Australian financial services (AFS) licence. Until a final decision has been made by the Tribunal, AxiCorp can continue normal operations. 

IG Markets CFD

AUD 0

0

0.08% with $7 minimum

Indices, FX, Shares, Commodities, Cryptocurrency, ETPs

MetaTrader 4
ProReal Time

CFDs are complex financial products and traders are at high-risk of losing all of or more than their initial investment.
Introductory offer: Build confidence by trading at lower minimum trade sizes for the first six weeks.
Plus, receive a reduced commission on Australian shares CFDs. T&C’s apply.
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Trade from over 15,000 markets with Australia’s leading service for CFD trading and forex.

ThinkMarkets CFD

$0

$0

From $7 or 0.08%. (whichever is higher)

Forex, indices, commodities, metals, share CFDs, ETF CFDs, futures

MetaTrader4, MetaTrader5, ThinkTrader

CFDs are complex financial products and traders are at high-risk of losing all of or more than their initial investment.

Trade forex, commodities and CFDs using MetaTrader4/MetaTrader5 platforms or access advanced analysis tools through ThinkTrader.

City Index CFD

AUD 0

0

0.08% with $5 minimum

ASX shares, 4,500 global shares, indices

MetaTrader 4
At Pro
Advantage Web

CFDs are complex financial products and traders are at high-risk of losing all of or more than their initial investment.
Trade CFDs on indices, FX, global & Australian shares and commodities, plus access other markets such as metals, bonds and interest rates.

Pepperstone CFD

USD 200

200

No commission

ASX shares, global shares, indices, cryptocurrencies, commodities

MetaTrader 4
MetaTrader 5
cTrader

CFDs are complex financial products and traders are at high-risk of losing all of or more than their initial investment.
Trade stock indices on the global market, via Pepperstone’s MetaTrader 4 and cTrader client terminals.

FP Markets CFD (Professional Account)

AUD 1,000

1,000

0.10% with $10 minimum

ASX shares, 6 global exchanges, indices, cryptocurrency

IRESS

CFDs are complex financial products and traders are at high-risk of losing all of or more than their initial investment.
Trade CFDs with FP Markets using the IRESSTrader platform. Trade CFDs on international equities, futures and forex.


Disclaimer: Trading in financial instruments carries various risks, and you can lose more than your capital. This article may contain general advice. You should always seek professional advice when deciding if a product is right for you.

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