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It makes sense that not all investors find the oil market attractive, given the volatility of oil prices in the past.

The “black gold” or “Texas tea” as they call it is where some of the richest people in history, including John D. Rockefeller, Jean Paul Getty, the Koch brothers and many others, created their vast wealth.

Oil prices plummeted in 2014. They have since risen above $75 a barrel. The last price rally had brought the price above $100.

Will the oil price boom happen again? Can investors profit from a potential oil market? And if so, how can one make an oil market and what should one look out for?

In this post we will provide answers to the above issues as well as any information regarding the oil market.

The need for a broker account to buy oil – Brief steps

For the oil purchase process, there is a need to have a broker account. The following brief steps will answer how to obtain one.

Το 51% των λογαριασμών ιδιωτών επενδυτών χάνουν χρήματα όταν διαπραγματεύονται CFD με αυτόν τον πάροχο. Θα πρέπει να σκεφτείτε εάν έχετε την οικονομική δυνατότητα να αναλάβετε τον υψηλό κίνδυνο να χάσετε τα χρήματά σας.

The best online broker for Oil Market

Before we proceed to analyze what concerns the oil market, we will refer to the best online broker with which you can invest. This broker is eToro. Below we will detail the reasons for this choice.

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eToro – Buy oil with a broker that can meet all your foreign exchange needs

You can trade over 3,000 international markets with eToro, including oil futures, oil stocks, oil exchange-traded funds and other asset classes. These include commodities such as gold, currencies, indices and cryptocurrency markets (CFDs).

One fee that almost all brokers will charge is the spread, which is the difference between the buy and sell prices. Every CFD broker will also charge you a small commission if you leave a trade open overnight.

With eToro, the spread and overnight fees are both cheap and extremely competitive in the market. This is crucial to keep most of your profits in your pocket.

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— eToro (@eToro) November 27, 2023

Finding other successful traders and investors and instantly copying their strategies is one of the best features of the eToro platform. You can see the performance of other traders using the Copy People option and, if you want, you can copy the exact trades of these traders to your own account.

The platform is a great way to diversify your portfolio when investing in the oil market because it offers a wide range of products and markets.

Το 51% των λογαριασμών ιδιωτών επενδυτών χάνουν χρήματα όταν διαπραγματεύονται CFD με αυτόν τον πάροχο. Θα πρέπει να σκεφτείτε εάν έχετε την οικονομική δυνατότητα να αναλάβετε τον υψηλό κίνδυνο να χάσετε τα χρήματά σας.

Understand how you can buy oil

If oil prices are expected to rise, buying oil through stocks
may be a wise choice. On the other hand, there are many ways to buy oil and a wide range of factors can affect performance. Let’s take a closer look at all the popular ways to invest. Incidentally, we should mention that eToro is one of the few Greek platforms that offers all categories of oil trading.

Oil futures contracts

Futures contracts are commonly used by those who want direct exposure to the oil market. Investors have a wide variety of oil futures contracts available to buy and sell. The most widely used is Brent Crude . The contract now covers a wide range of oil fields, the most recent being the Texas fields.

The primary point is that cash settlements are made for the majority of oil futures contracts, and all for retail investors. After a futures contract expires, investors are not obligated to accept delivery of the oil itself.

This means that the futures contract is also tradable at any time. Buying a contract means that you are trading the contract itself and not the underlying asset, in this example, the oil market.

However, most inexperienced investors should avoid trading futures contracts due to the risk. One example is when the COVID-19 pandemic occurred and low demand and abundant supply caused gasoline futures prices to go negative. As a result, investors who manage their risk more conservatively may want to consider other options.

Finally, keep in mind that you can invest in the commodity using oil options in conjunction with some other derivatives. But even with this safety measure, novice investors should gain knowledge before trying it.

Oil reserves

Companies involved in the production, sale, and distribution of oil are known as oil reserves. Because the performance of these businesses is tied to the price of oil, owning them is another way to gain exposure to the oil market. For example, if the price of crude oil rises, the price of Standard Oil ‘s stock will also rise because the company can now sell gasoline at a higher profit.

Furthermore, companies that convert crude oil into gasoline are much safer investments than those that drill for oil. Drilling companies are more likely to explore potential oil deposits without producing oil. Of course, if these businesses find oil, the potential rewards are also much higher.

Petroleum funds

Oil funds are arguably the easiest and least risky option for novice investors to gain exposure to the oil market. In general, oil funds diversify across a wide range of oil-related assets. Some funds may have a portfolio heavy in futures contracts, while others may invest in oil companies.

Because oil ETFs are more liquid than other mutual funds, investors looking to invest in oil may find them attractive. However, it is important to conduct in-depth due diligence and examine the energy assets the ETF purchases.

Another thing to keep in mind is that an oil fund is only diversified into energy-related assets, even though it is diversified overall. Therefore, in the event of a collapse in the oil industry, investors holding oil funds could face significant losses. Exposure to the oil industry may seem attractive, but it would be wise to diversify by investing in other sectors of the economy as well. Using mutual funds and index funds makes the process of buying oil simpler.

Το 51% των λογαριασμών ιδιωτών επενδυτών χάνουν χρήματα όταν διαπραγματεύονται CFD με αυτόν τον πάροχο. Θα πρέπει να σκεφτείτε εάν έχετε την οικονομική δυνατότητα να αναλάβετε τον υψηλό κίνδυνο να χάσετε τα χρήματά σας.

Why you should make an oil purchase

Because black gold is so important to the modern world, there are many reasons to make an oil purchase. Below we explain these reasons in detail.

Demand – Oil is the most widely used commodity in the world, with a current demand of just under 100 million barrels.

Speculation – The price of oil is largely determined by investor speculation. Buying commodities such as oil futures is a common activity that has proven profitable over time.

Energy needs – Although renewable energy is very popular today, it is far from ready to replace oil as the primary energy source. Because of this, oil will likely continue to be in high demand for a very long time. Some analysts even predict that the use of the resource will increase in the next ten years due to the decline in deposits on a global scale.

Volatility – While this may deter risk-averse investors, the volatility caused by wild speculation on crude oil presents fantastic opportunities for some traders to make money by making an oil purchase.

How the oil market generally works and how oil prices are affected

First of all, the functioning of the oil market is significantly influenced by the supply and demand for oil. Demand is broken down into four main categories, which we list below, while supply is mainly driven by the mining industry.

Location

Depending on where the oil is refined and “produced,” there are dozens of distinct benchmarks. For example, Brent Crude comes from four different fields in the North Sea and is perfect for diesel and gasoline because it is light. Dubai and Oman as well as West Texas Intermediate are two other examples.

Transport

Around 35% of oil demand comes from road use, with aerospace accounting for a significant portion of demand. The price of each barrel is affected by fluctuations in travel volume, which can be caused by events such as lockdowns.

Energy

Electricity generation, either as a stand-alone source or to fill gaps in the grid left by renewable energy sources such as solar power, accounts for about 20% of global oil consumption. The petrochemical industry, which produces plastics, resins and other products derived from oil, is also very large.

Geopolitics

Political issues such as war, trade wars, economic sanctions, and supply chain disruptions have a significant impact on the price of oil. Major suppliers, such as the nations that make up the Organization of the Petroleum Exporting Countries, have significant influence on the amount sold on the market.

What are the benefits of buying Oil – Advantages and disadvantages

These are the benefits and disadvantages of buying oil.

Factors to Consider Before Buying Oil

Before making an oil purchase, investors should be aware of the following key factors:

Think about the potential dividends

Investing in dividends is a great way for investors to gradually build wealth and receive consistent returns. In particular, the largest oil companies usually offer a respectable and consistent dividend.

However, compared to defensive stocks, the dividend on oil stocks is marginally less assured. Due to the aforementioned factors, even larger companies may suffer losses as a result of price shocks and volatile markets. They may reduce or perhaps stop paying dividends as a result.

The act of portfolio diversification

One of the most important things to think about when looking at oil stocks and the oil market is the diversification you want to have. There are two things you need to know in this situation. The first is the desired level of diversification within the energy sector. The second is the overall diversification of your portfolio.

Avoiding investing all of your capital in single assets makes sense, given how unpredictable the oil market can be. Investing a reasonable portion of one’s portfolio in oil funds and the remainder in other sectors is a safe strategy, especially for novice investors.

Consider alternative investment opportunities

With its limited supply, oil has a major impact on the climate. As a result, efforts are being made around the world to transition to alternative energy sources. These include nuclear and solar. While it seems obvious that oil will be around for at least a few more decades, investors may want to consider alternative energy stocks.

Risks and benefits of the oil market

The oil market could be a big winner once again. Or it could be a dying industry that paves the way for a new wave of green energy. It all depends on your opinion.

The benefit is obvious. The oil market is a bet for at least one more oil boom, given that there are still decades worth of oil reserves in the ground. Oil is also still in high demand globally, in both emerging and developed markets.

It is also obvious what the risks are. There is a fork in the road ahead for the oil market. The price of oil fell sharply in 2014–15 and then again in 2020. There is no assurance that the price of oil will rise again. If that happens, investors will, at best, be faced with years of lopsided price movements or, at worst, zero returns on their investment.

Important tips for the Oil Market

Buying oil requires a multi-step process that you must complete carefully and methodically. This is the best method for handling the processes.

Plan your strategy

Effective investing is impossible without a plan. Formulating the right strategy requires knowing yourself as an investor and what you want from any investment. Do you want to let your money work for you in the background, or do you have enough free time to actively manage your oil market investments?

Do a survey

Keeping up with the ever-changing oil market can be challenging. Therefore, it is essential to conduct in-depth research before taking any kind of substantial position. It can mean the difference between losing your capital and earning significant returns.

Establish a spending plan

As part of your investment strategy, accountability can naturally come from having a budget. It also means that your goals will be more measurable and grounded in reality, as you won’t overextend yourself or invest with money you can’t afford to lose.

Choose between extended and shortened periods

Some people enjoy the volatility of short-term trading speculation, while others prefer to buy oil for its potential for future growth. Consider the path that suits you best.

Locate a platform to invest in

A wide variety of oil assets are available on most investment platforms due to the popularity of oil as a tradable asset. We have already recommended the best platform in our opinion. Here you can find the best brokers for buying oil and other assets .

When is the right time to buy oil?

This is a good time to buy oil. This is because it is the most important commodity in the world and there is no indication that this will change in the next ten years on a global basis. Furthermore, although oil is a volatile commodity, prices usually fluctuate and fall sharply only in response to major events. Also, the lack of reserves worldwide will soon push prices up, so it is good to be prepared by making an oil purchase immediately.

Is buying oil a good investment today?

Warren Buffet and other traditional value investors look for companies or industries that have underperformed over time. They may also be overvalued relative to their growth potential. Given that oil prices have plummeted for the second time in six years, one could easily do the same for the oil and gas industry right now.

At current lows, investors may benefit from the oil market if there is still a boom left in it.

On the other hand, the oil and gas industry may have reached its end due to the decline in global demand for oil and the increase in demand for renewable energy. It may be years before oil prices rise again, which would make the oil market a challenge for the industry to prosper.

Oil Market – Complete Guide

Coming to the end of our article today, let’s take a closer look at the steps that must be followed to purchase oil from an online broker.

In conclusion

No one can predict the future, especially the markets. The oil market may no longer be one of the most valuable equity investments in the world. But businesses are always coming up with new ideas and strategies to make money.

Online brokers are a great tool to use to feel comfortable with the investment decisions you make. This, if you are unsure or want an extra set of eyes to look at your portfolio. In addition, and determine when it would be best for you to trade an ETF or buy an oil stock.

Although we wouldn’t invest our entire capital fund in the oil market, we could invest at least 5% of our portfolio in a sector that is reviving in every geopolitical game.

eToro – The best broker for oil investing Greece

Το 51% των λογαριασμών ιδιωτών επενδυτών χάνουν χρήματα όταν διαπραγματεύονται CFD με αυτόν τον πάροχο. Θα πρέπει να σκεφτείτε εάν έχετε την οικονομική δυνατότητα να αναλάβετε τον υψηλό κίνδυνο να χάσετε τα χρήματά σας.

Frequently asked questions

Bibliographic resources

• https://www.nasdaq.com/market-activity/commodities/cl:nmx
• https://www.marketwatch.com/investing/future/cl.1
• https://oilprice.com/