How to invest in oil
Editorial staff, J.P. Morgan Wealth Management
- There are several ways to invest in oil, including individual stocks, exchange-traded funds (ETFs), mutual funds and futures contracts.
- Each investment type comes with its own risks, costs and potential benefits, and understanding these is crucial before you invest.
- Oil investments may help diversify your portfolio but are subject to market volatility, geopolitical factors and regulatory changes.
Oil is a popular investment thanks to its global demand and economic importance, and it may offer potential long-term returns. Like any investment, though, it comes with trade-offs that should be considered first.
The conflict in Iran in 2026 caused oil prices to spike in March, raising not only prices at the pump but also awareness of how closely tied the commodity’s supply is to market behavior and investor sentiment. With these price shocks in mind, this article breaks down some of the ways to invest in oil, the risks and benefits of each approach and how to get started.
Why an investor might want to consider investing in oil
Oil plays a significant role in the global economy: It powers transportation, manufacturing and many industrial processes, making it a valuable resource. This economic importance is part of what makes oil such an attractive option for many investors.
Because oil prices may not always move alongside stocks and bonds, investing in oil can help diversify your portfolio. Oil has also at times historically served as a hedge against inflation, since energy prices tend to rise alongside the broader cost of goods. And because oil prices can shift in response to geopolitical events, some investors look for opportunities to profit from those price swings.
All of that said, investing in oil can come with real risks you need to understand before getting started, including price volatility and regulatory and environmental pressures.
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Ways to invest in oil
There are several ways to invest in oil, and each comes with its own unique risks and levels of complexity. Here are some different options to potentially consider.
Oil stocks
If you’re looking to invest in oil, you might consider buying shares of companies involved in oil production. For example, you may want to explore companies that handle oil drilling and refining, or those that produce drilling equipment used by oil producers.
A dominant risk of this approach is that stock prices are influenced by more than just oil prices, so things like management decisions, earnings reports and the state of the market overall can also affect your returns.
Oil ETFs and mutual funds
Beyond individual stocks, ETFs and mutual funds that invest in oil can be an effective way to gain exposure to the commodity. With these types of investments, you spread your risk across multiple holdings instead of betting on a single company.
Like stocks, you can buy and sell ETFs and mutual funds through any standard brokerage account. However, unlike selecting individual stocks yourself, ETFs and mutual funds are professionally managed; that oversight entails regular fees, which may affect your investment returns. Fees vary from fund to fund, so do your research before making your selection.
Oil futures and options
A futures contract sets a fixed price to buy or sell an asset at a later date. You can trade futures more often than other securities because futures trading hours can extend beyond the traditional hours for stocks and funds. Futures also may tend to be more liquid, so investors may be able to buy or sell a contract quickly if they’re reacting to news events that can impact certain markets. However, futures are highly leveraged, which means the risk of losing money is that much greater. And because they’re highly leveraged, you’ll need to trade on margin, which can increase gains but significantly amplify losses.
Because of the outsized risks, futures trading may not be appropriate for beginner investors.
An option gives you the choice to buy or sell an asset at a set price, but you don’t have to follow through. Options can be used as a hedge, which may reduce certain risks for the investor. But options can be risky if the market moves adversely, or an investor fails to pay attention to the option’s expiration date.
Both futures and options are used primarily by experienced investors and traders looking to benefit from swings in prices – and both come with significant risks.
Master limited partnerships
Master limited partnerships (MLPs) are publicly traded companies, and they typically do business in sectors that come with steady fees and income, such as energy infrastructure. MLPs pass most of their income to the investors, who then pay taxes on the money. Because of this, MLPs can offer steady income to investors.
The tax treatment of MLPs is more complicated than with regular stocks, however. MLP payouts are often considered a return of capital, which can make filing your taxes more complex. If you’re thinking about investing in MLPs, it’s a good idea to review the tax implications or speak with a financial professional before doing so.
Factors that influence prices of oil-related investments
Many factors affect prices of oil-related investments. Let’s consider some of the main ones.
- Supply and demand: At their core, oil prices are driven by supply and demand. When the global economy is strong and energy use rises, prices tend to go up. When demand slows or supply increases, prices usually fall. Decisions by major oil-producing countries and U.S. shale producers play a significant role in how much oil is available.
- Geopolitical events and OPEC decisions: OPEC (the Organization of the Petroleum Exporting Countries) and its allies can influence prices by limiting or increasing oil production. Production cuts often push prices higher, while higher output can bring prices down. Political instability, wars, trade disputes and sanctions in oil-producing regions can also cause sudden price swings.
- Technological advancements: Growth in renewable energy and wider use of electric vehicles could reduce long-term oil demand. At the same time, advancements in drilling technology have increased oil production in the United States, adding more supply to the domestic market.
- Currency fluctuations and global economic health: Because oil is priced in U.S. dollars, changes in the dollar’s strength can affect prices. A stronger dollar can lower demand for oil, while a weaker dollar can support higher prices. Broader economic conditions matter too, since strong growth tends to increase energy use while recessions typically reduce it.
Risks and considerations for investors looking to gain exposure to oil
Like any investment, oil comes with risks that are important to understand before committing. Let’s walk through some of the major ones.
- Market volatility and price swings: Oil prices can change quickly due to unexpected events, policy shifts or economic slowdowns. This volatility can affect oil stocks, ETFs and other related investments.
- Regulatory factors: The oil industry is heavily regulated, and policies can change with new administrations. A growing focus on climate change, for example, has led some investors to reduce their exposure to fossil fuels. Stricter environmental regulations could also raise costs and affect profits for oil companies.
- Tax considerations: The tax treatment of your investments also varies by type. For example, MLPs typically require more complex tax reporting than standard ETFs.
- Liquidity and transparency: Most oil investments trade on public exchanges and are generally easy to buy and sell. However, some funds – especially those that use futures contracts – can be harder to evaluate because their performance depends on more than just oil prices.
How to start investing in oil
Before choosing an investment, evaluate your current financial situation and overall timeline. Oil can be a volatile asset, so consider your risk tolerance and choose an investment approach that aligns with your goals.
From there, you can start evaluating your options. If you’re new to oil investing, stocks or ETFs may be the easiest starting point, depending on your goals and risk tolerance. Futures and options are often better suited to more experienced investors who understand how leverage works and are comfortable with more risk.
Many oil investments can be purchased through a standard brokerage account. If you don‘t already have one, look for a platform that charges low fees and has tools to help you research and monitor your holdings. A financial professional can help you think through your options. This is especially important if you‘re considering more complex vehicles like MLPs or futures contracts.
The bottom line
Investing in oil can help diversify your portfolio, but it can take time to figure out the right approach for your unique situation. Whichever route you’re considering, make sure your investment aligns with your financial goals, time horizon and risk tolerance. Oil markets can be unpredictable, and the factors that drive prices can shift quickly and with little warning.
If you’re unsure where to start, consider speaking with a financial professional. They can help you evaluate whether oil makes sense for your portfolio and, if it does, guide you toward the most appropriate investment vehicle for your circumstances.
Frequently asked questions about investing in oil
Oil investing can be a good option for beginners, depending on the approach they take. If you’re just getting started, sticking to stocks or ETFs may be a good place to start. A financial professional can also help you determine whether oil makes sense for your overall portfolio.
Oil stocks give you ownership in a specific company, so your returns are tied to that company’s performance as well as to oil prices. That said, oil ETFs spread your exposure across multiple holdings, which can reduce the risk associated with any single company.
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Editorial staff, J.P. Morgan Wealth Management