How to Invest in Oil in Canada | Step-by-Step

Summary: Though it’s driving the climate into a crisis, oil will most likely not leave the energy limelight anytime soon. For those interested in investing in oil in Canada, keep reading as we lay out a step-by-step guide for you and present our recommendation for a broker in Canada: Interactive Brokers. 

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• Highly trusted multi-asset broker with clients in over 200 countries

• Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)

• Low commissions starting at $0 with no platform fees or account minimums

• Easily fund your account and trade assets in 26 currencies

• IBKR pays up to 4.58% interest on cash balances of $10k or more

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Oil as an asset

The primary driver of crude oil prices is supply and demand dynamics. When supply surpasses demand, usually due to a decrease in consumption or an increase in production, the price tends to drop. Conversely, the price typically rises when demand outpaces supply, often due to escalating consumption or supply disruptions. These shifts in perceived supply and demand can be triggered by various events that impact oil-producing nations, such as geopolitical conflicts like Russia’s invasion of Ukraine in 2022 or global crises such as the Covid-19 pandemic.

From an investor’s perspective, oil presents several opportunities. It can serve as a speculative asset, a diversification tool in a portfolio, and potentially as a hedge against inflation. However, it’s worth noting that oil is known for its inherent volatility. As such, investing in oil requires careful consideration of market trends, risk management strategies, and a thorough understanding of the factors impacting its price.

How to invest in oil in Canada: Step-by-Step

Let’s look at the step-by-step process of investing in oil in Canada. 

Step 1: Choose your investment vehicle 

Investing in oil is not limited to buying physical barrels of the substance. Instead, multiple avenues exist for investors to capitalize on oil as a commodity, including:

• Oil futures: Oil futures are contracts to buy (go long) or sell (go short) a specific amount of oil at a predetermined price on a particular future date. Futures are traded on exchanges and are the most direct method of owning physical commodities. However, they can be highly complex and risky, requiring a much deeper understanding of the market;
• Options on oil futures: These are derivatives based on oil futures. An option gives the owner the right, but not the obligation, to buy (in the case of a call option) or sell (in the case of a put option) an oil futures contract at a set price;
• Oil-price exchange-traded funds (ETFs): If you prefer to avoid the risks of fast-paced and margin-dependent derivatives markets, consider investing in ETFs that track the performance of an oil price index such as West Texas Intermediate (WTI) or Brent Crude. These ETFs trade on exchanges like stocks;
• Oil stocks: Buying shares in oil companies is another way to invest in oil. This could be in large multinational corporations, such as BP (LSE: BP), Shell (LSE: SHEL), and Enbridge (TSX: ENB), or companies in the midstream sector or oilfield services;
• Oil ETFs and mutual funds: Investors can also gain exposure to oil through energy-sector ETFs and mutual funds. While energy stocks come with their own risks, the diversification they offer allows investors to mitigate the risks associated with investing in individual, potentially underperforming oil stocks. For example, the Energy Select Sector SPDR Fund (NYSE: XLE), a leading energy ETF that seeks to represent the energy sector in the S&P 500 index or the iShares Global Energy ETF (NYSE: IXC), which provides global exposure to the largest energy companies. 

Step 2: Select a broker

Choosing a broker to facilitate your investment in oil is a critical decision and should be done carefully. Here are some key factors to consider:

• Regulation: Ensure the broker is regulated by the relevant authorities in Canada;
• Product offering: Check if the broker offers the type of oil investment you are interested in;
• Fees and commissions: Compare fee structures among different brokers. This includes trading fees, account maintenance fees, and any other charges;
• Trading platform: Look for a user-friendly interface. Consider also if they offer tools for market analysis and risk management;
• Reputation: Do some research on the broker’s reputation. Look for reviews and testimonials from other clients, and check if there have been any serious complaints or regulatory actions against the broker. 

Our recommendation for an online broker, regardless of your chosen financial instrument for investing in oil, is IBKR. Loved by over 2.2 million users, it offers a comprehensive range of features, including:

• Futures, commodities, and future options are offered on over 35 market centers globally with simple, low-cost pricing plans;
• Commission-free stock and ETF trading;
• Global stock-trading on 90+ market centers;
• Fractional shares;
• Earn extra income by lending your fully-paid shares of stock;
• Lowest financing rates for margin accounts in the industry;
• 4.58% interest on cash balances of CAD$13k or more;
• No account minimum. 

Best Platform for Worldwide Stock Trading & Investing

• Highly trusted multi-asset broker with clients in over 200 countries

• Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)

• Low commissions starting at $0 with no platform fees or account minimums

• Easily fund your account and trade assets in 26 currencies

• IBKR pays up to 4.58% interest on cash balances of $10k or more

Up to 4.58% interest on balance*

Get Started

Step 3: Place your order

Once you have registered and funded your account, you can go ahead and place the order for your desired investment. For oil stocks or ETFs, simply enter the ticker symbol of your selected asset in the search bar and specify the number of shares you wish to buy.

You can choose between two execution options: 

• Market order: An order to purchase the stock at the current market price, which is usually fulfilled instantly;
• Limit order: An order activated once the stock hits your pre-selected price. 

Note that additional requirements may be applicable for trading in derivatives markets or with margin. If you wish to trade those types of products, ensure you fully understand how they operate and have robust risk-management measures in place. 

Oil price today

Pros and cons of investing in oil

Pros

• High-risk, high reward: Oil is a highly volatile commodity, which can present opportunities for high returns, particularly when global supply and demand dynamics fluctuate,
• Hedge against inflation: Investing in oil can serve as a hedge against inflationary pressure, as the factors that drive inflation also tend to drive oil prices;
• Persisting demand: Despite shifts towards renewable energy sources, oil remains a major global energy source. In fact, despite its projected diminishing share in the overall energy market, demand for oil is anticipated to persist in growth until at least 2040;
• Income-generating: Oil and gas companies tend to be some of the best dividend-paying stocks.

Cons

• Volatility: On the flip side, the same volatility can also result in substantial losses. For example, gas and oil stocks plummeted from mid-2014 to early-2016 due to a surplus of crude oil and natural gas supply;
• Cyclicality: The oil and gas industry is known for its cyclical nature, characterized by alternating periods of booms and busts;
• Legal and regulatory threats: The oil and gas sector is exposed to various legal and regulatory risks, including potential changes in laws relating to climate change and emissions, which can impact the profitability of the companies operating in the sector;
• Environmental concerns: As the world moves toward cleaner energy sources to combat climate change, long-term demand for oil may decrease, potentially affecting the value of oil investments. 

Should I invest in oil?

Indeed, investment in oil and gas company stocks can potentially lead to considerable returns through capital appreciation and impressive dividend yields, especially in periods when the underlying commodity prices surge.

However, let’s not forget that oil is an incredibly volatile asset. In short, despite the potential for lucrative profits from well-timed oil investments, with the ambiguities that often cloud the energy market, investment in the sector will demand careful review. 

Moreover, we stand on the precipice of a gradual but undeniable transition toward renewable energy. And while the pace of this shift may seem slow now, it’s destined to give the oil and gas industry a real makeover down the line. So, as you consider the financial soundness of your investment, don’t let your chosen companies’ environmental footprint and sustainability scores slip under the radar. It’s not all about the dollar signs, you know. The shade of green matters too.

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

FAQs about how to invest in oil in Canada

Best Platform for Worldwide Stock Trading & Investing

• Highly trusted multi-asset broker with clients in over 200 countries

• Trade on 150 markets globally from a single platform (stocks, ETFs, futures, currencies, crypto & more)

• Low commissions starting at $0 with no platform fees or account minimums

• Easily fund your account and trade assets in 26 currencies

• IBKR pays up to 4.58% interest on cash balances of $10k or more

Up to 4.58% interest on balance*

Get Started