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How to invest in the oil stock market

The oil market is confusing for both professional and individual investors because of the frequency of large price fluctuations, some of which occur on a daily basis. We’ll take a look at the forces that drive the market and tell you how to invest in the oil stock market wisely.
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Stability

The price of any product is dependent on the demand for it but predicting the demand for oil isn’t easy. The other factor that determines the price is the stability of the region in which the oil is produced. Regular production keeps costs low, when oil is produced in countries with an instable government or one where workers frequently take strike action, the prices fluctuate unpredictably.

How to invest

If you’ve decided that the reward is worth the risk there are a few avenues you can pursue in order to invest in oil. Each method carries with it different degrees of risk but as long as you’re aware of the risks, you’ll be able to judge if you can afford to sink your money in or not. A direct investment in oil as a commodity is one option but you could also consider investing in oil through energy-related equities.

Oil futures

One direct option open to you is to purchase through oil futures or future options. Investing in futures is a high risk venture and you’ll need to do a lot of homework so if you’re thinking of investing for the first time, you probably should consider another way.

ETFs

Another way you can sink your money into the oil market is through commodity-based oil exchange-traded funds (ETFs). These trade on the stock market so they can be bought like any other share. Energy sector EDFs are another option. Buying these shares indirectly exposes you to the oil market but they offer a lower risk.

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