how to invest in crude oil for beginners
Investing in crude oil wasn’t even on my radar at first. I always thought it was something only big institutions or super-rich traders dealt with. But one day, a YouTube video about commodities caught my attention — and boom, a new investing rabbit hole opened up. If you’re wondering how to invest in crude oil for beginners, you’re in the right place. I’ll walk you through how I got started, the mistakes I made, and what I wish I knew from the beginning.
Why I Got Interested in Crude Oil
It started during the pandemic when oil prices famously went negative for the first time ever. I remember thinking, *Wait, how can a price be less than zero?* That strange event made me realize how volatile and potentially profitable oil trading could be. Plus, oil powers the global economy — transportation, manufacturing, even plastics. It’s everywhere. So I figured, why not learn how to invest in it?
What I Thought Crude Oil Investing Was — and What It Actually Is
I used to think investing in crude oil meant you had to somehow buy barrels of the stuff and store them in a garage or something. Spoiler alert: that’s not how it works (thankfully).
There are a few main ways beginners can invest in crude oil:
1. Oil Stocks
This is the simplest entry point. You just buy shares of oil companies like ExxonMobil, Chevron, or smaller producers like Marathon Oil. That’s how I dipped my toes in. I opened up my regular stock trading app and bought a few shares of Chevron (CVX). Easy peasy.
2. Oil ETFs (Exchange-Traded Funds)
This was my next step. ETFs like **USO (United States Oil Fund)** let you invest in oil prices directly — without buying futures contracts yourself. These ETFs usually track the price of West Texas Intermediate (WTI) crude.
If you’re just starting out, ETFs are your best bet to get price exposure without dealing with the complexity of futures.
3. Futures Contracts (Advanced)
Eventually, I wanted to try the “real” stuff. Futures are contracts to buy or sell oil at a specific price on a future date. Sounds straightforward, but they’re super risky and involve leverage. I paper-traded a few crude oil futures (CL contracts) using a demo account first — and boy, I’m glad I did. The volatility is intense. One small movement can wipe out your whole account if you’re not careful.
How I Actually Got Started (Step-by-Step)
Here’s exactly what I did, in case it helps you get started too:
Step 1: Learn the Basics
I spent a week just watching YouTube videos and reading Investopedia articles. I learned about:
* Brent vs. WTI crude
* What drives oil prices (OPEC decisions, war, supply & demand, etc.)
* Different ways to invest
This step saved me from making a bunch of dumb mistakes later.
Step 2: Start with Oil Stocks
I opened up my brokerage account and bought \$200 worth of ExxonMobil. Then I added some Chevron. I liked the idea of getting dividends while I watched the sector.
Tip:Look for companies with strong balance sheets and long histories. Avoid sketchy penny oil stocks.
Step 3: Add an ETF
Next, I bought a few shares of USO. This gave me more direct exposure to oil prices without needing a futures account.
What I learned: USO and similar ETFs don’t perfectly track oil prices. That’s because they have to “roll over” futures contracts every month, and that causes price slippage.
Step 4: Try a Paper Trading Platform for Futures
Curiosity got the best of me. I signed up for a free paper trading account on Thinkorswim (TD Ameritrade). I simulated trading crude oil futures (CL contracts). It was eye-opening. Futures are fast-moving and margin-based — not for the faint of heart.
Lesson: Start slow. Paper trade first. Futures can be profitable but come with serious risk.
What I Wish I Knew Before Investing
Here are a few things I would tell my past self:
Oil Prices Are Affected by *Everything*
OPEC meetings, geopolitical tensions, hurricane season in the Gulf of Mexico — they all influence prices. It’s not just about supply and demand. News can spike or tank oil within minutes.
ETFs Don’t Track Oil Perfectly
When I bought USO, I assumed it would mirror oil prices 1:1. Not so. Contango (when future prices are higher than current ones) eats away at returns over time. Backwardation (the opposite) can help. I didn’t even know those words existed before!
Futures Are Like a Casino — Proceed With Caution
You can make or lose thousands fast. It’s tempting, but don’t go in without fully understanding leverage, margin calls, and expiry dates.
Pros and Cons of Crude Oil Investing (From a Beginner’s View)
Pros | Cons
High volatility = high potential returns | Volatility also means higher risk
Tangible, real-world asset | Affected by unpredictable global events
Multiple ways to invest | Futures are complex and require education
Oil stocks can pay dividends | ETFs may underperform due to roll costs
Tools That Helped Me
If you’re serious about learning how to invest in crude oil for beginners, here are some tools I found helpful:
- Investopedia – For definitions and deep dives
- YouTube Channels like –TraderTV Live and Everything Money
- TradingView – For charting oil prices (I use WTI Crude Oil ticker: CL1!)
- Thinkorswim Demo Account – For safe futures practice
So… Should You Invest in Crude Oil?
If you’re just starting out, my advice is to *keep it simple*. Start with oil-related stocks or ETFs. Don’t rush into futures unless you’re ready to dedicate serious time to learning.
Crude oil can be a great part of a diversified portfolio — especially when inflation’s high or global supply is disrupted. But it’s not a “set it and forget it” type of investment. You’ve got to keep an eye on news, trends, and market dynamics.
Final Thoughts
- Learning **how to invest in crude oil for beginners** has been one of the more exciting parts of my investing journey. It pushed me to understand macroeconomics, geopolitics, and risk management in ways the stock market never did.
- Start small. Learn every day. And remember — even if you don’t strike oil on day one, the learning process itself is worth the journey.
- Have questions or want me to break down anything specific? Drop them in the comments — I’m still learning too!
Next Article To Read: The Best Commodity ETFs I Found as a Beginner