The oil market can be very confusing to both the average individual and seasoned investors. The oil market often has large fluctuations that occur on a daily basis. Because the oil market is so volatile, there are chances that you could make big daily gains. However, you could also lose a lot of money very quickly. 

If you are thinking about investing in oil, here is everything you need to know so you can start now.

What affects the price of oil?

We know that oil is a very volatile commodity, but what affects its price? Oil stocks are highly sensitive to changes in demand. Put simply, if demand increases or supply decreases, the price of oil will rise. Political events that influence the planet (such as Brexit or the ongoing coronavirus pandemic) can all have significant effects on the price. 

The Organization of the Petroleum Exporting Countries (OPEC) is an international organization set up to try and keep oil prices relatively stable and fair. Its members are in control of around 75% of the market. 

Is investing in oil the right option for me?

If you are thinking about investing in oil, you might be imagining yourself as a massive oil tycoon. However, in reality, oil is not likely to make you any richer than any other investment. Here are some things you need to consider when trying to work out whether oil is the right investment for you. 

  • The price of oil is very volatile: prices for oil can be tumultuous. Not only is it hugely influenced by supply and demand, but it can be easily affected by world events. Take the coronavirus pandemic, for example, which led to oil prices falling to around $20 a barrel, the lowest level for 18 years. 
  • You need to consider your ethics: there is no denying it: fossil fuels such as oil are tremendously bad for the environment. If you are looking for ethical or green investments, this is not for you. Moreover, it is estimated that oil might only last another 50-60 years based on our current consumption, so this is also something that you need to consider. 
  • You need experience: if you really want to invest in oil, you need to have a lot of experience in investing. This is because there is not one single price for oil. There are over 150 oil brands and indexes, all of which can rise and fall independently. 

If none of these things are an issue for you, then you should seriously consider investing in oil. Although the world is now beginning to focus on fossil fuels, it is estimated that fossil fuels still make up 85% of global energy. 

Even if you are ready to invest, it is recommended that you only make it a small ‘high-risk’ part of your portfolio. That way, if the prices drop, you won’t be losing thousands of dollars.