The easy and low-cost way to invest in shares of oil is through an exchange-traded fund, or ETF. Oil commodity ETFs own oil or oil futures contracts and their share prices will reflect the change in the price of a barrel of oil. These ETFs allow investors to buy oil shares using the same process as they would for buying shares of stock.
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Apply for and fund an online brokerage account, if you do not already have an account with a broker. For information on the major online brokers, browse to the link for the Smart Money magazine Broker Survey, provided below.
Review the current share prices of the three major oil commodity ETFs:
United States Oil Fund, symbol USO.
iPath S&P Crude Oil Total Return Index ETN, symbol OIL
PowerShares DB Oil Fund, symbol DBO.
Select one of the funds and calculate how many shares you want to buy. Divide your investment amount by the current share price to get the number of shares for purchase.
Buy the selected ETF shares using your brokerage account stock-order screen. An order is placed by entering the stock symbol of the ETF and number of shares to purchase. The order will be filled at the current market price.
Tips and warnings
- USO is the most active of the oil funds. This is a good selection if you want to trade in and out based on changes in oil prices. DBO has the lowest expense ratio for long-term holding.
- The cost to buy the shares of an oil ETF is the same as any stock brokerage commission.
- Use an oil price chart to determine a good entry point for your ETF purchase. Do not buy shares when the price of oil is in a down trend.
- The price of crude oil and the share prices of the oil ETFs can fluctuate significantly. Understand the risks and do your own research before investing in oil ETF share.
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