There are several ways to trade and invest in the oil markets Oil, as a commodity Oil. ETFs Oil and gas indices and shares in the individual companies. Trading the price of oil is the most common way. There are many classifications covering varying degrees of quality and sulfurous content, but two benchmarks are widely used: Brent and US Light Crude.
Brent is the classification that covers oil that has been produced in Europe since 1976. It was named after the Brent field off the northeastern tip of Scotland which was run by Shell and the company that became ExxonMobil.
US Light Crude
US Light Crude is a mixture of oils that come from North America, the most prominent being West Texas Intermediate, or WTI.
The disparity between Brent and US Light Crude has been kept steady over the years with US oil mostly at a small premium to Brent, but this has been flipped in recent years because the Libyan crisis in 2011 led to an increase in supply from North America.
Oil ETFs, or exchange-traded funds, are often used to gain exposure to the oil market. Unlike buying into a single stock, an ETF charges fees which will eat into the overall fund performance. The indices are a way to trade a group of similar companies such as oil and gas producers or the equipment service companies.
Finally, company shares themselves. Selecting which shares can be a complex process as there are different sorts of businesses.
An upstream company is involved in exploration and production. Here companies are vulnerable to a drop in the price of oil.
Midstream is processing, storing and transportation.
Downstream concerns itself with refining the crude oil.
These companies tend to make more money when the oil price is low. The big multinationals are often exposed to all areas, but some of the smaller oil businesses are specialists. There are traditional oil companies that drill and recover oil in a conventional way then there are those that employ new technologies like fracking.
There are also the oilfield service companies that provide and operate rigs. Because of the complexity and vast array of options, spread betting is often a good way for traders to speculate on crude price volatility without a direct relationship to the underlying asset and so there is no oil contract to worry about, leaving the trader to focus on pure price action. But whichever way you choose, it’s a sector will a wide variety of opportunities.