Introduction to Crude Oil Investment in 2023

Basic Knowledge of Crude Oil 

Crude oil is a fossil fuel that can also be called petroleum. It is made from the remains of plants and animals that lived millions of years ago. 

The yellowish-black liquid comes from reservoirs deep below the surface of the Earth.  Crude oil is a raw material that can be turned into gasoline, heating oil, and asphalt.

Crude oil is valuable because it is a commodity, meaning it is a base product or raw material used to make other products. Crude oil can be traded as a crude oil investment derivative, just like many other commodities, such as gold or farm products.

The Brent crude oil from Europe, the WTI crude oil from the United States, and the OPEC basket are three of the most important benchmarks traders use to set prices for oil and gasoline. 

What Are The Best Ways to invest in crude oil?

Some investors believe that oil will be a valuable asset for a long time to come. Because it's easy to get, use, and popular around the world. This is one of the reasons why investors and traders love this commodity.

You can invest in oil through direct or indirect exposure to the commodity.

◆◆Direct investing: oil futures, oil options and oil CFDs on commodity-based exchanges;

You are trading a crude oil contract and selling the contract for a profit. You only have paper assets, no actual crude oil;

◆◆Indirect investing: buying shares of exchange-traded funds (ETFs), energy sector mutual funds, or individual oil companies

Some oil and exploration funds and funds in the energy sector. Oil company stocks fall into three categories: those that extract oil; operate the pipelines that transport crude; and downstream companies that refine oil and sell finished products.

Analysis of Market Fundamentals of Crude Oil Investment 

Below are the details of crude oil prices during specific events in history:

Geopolitical conflicts and civil unrest also have a major impact on the global supply and price of crude oil.

There are many reasons why oil prices are more volatile now, but these five are the most important.

Visualizing Historical Oil Prices (1971-2022)

★Russia's takeover of Ukraine

Russia is the third-largest producer of liquid fuels and petroleum, so when it invaded Ukraine at the end of February 2022, the price of Brent crude oil futures changed immediately.

As the conflict continued, crude oil prices rose steadily, reaching almost $130/b early in March and staying well above $100/b through April 7.

★Oil supply from the US

Both the demand for and supply of oil are still affected by the coronavirus pandemic and natural disasters. Hurricane Ida caused a drop in production in the U.S. because at least nine refineries had to close because of the storm.

The EIA thinks that the average amount of crude oil produced in the U.S. in 2022 and 2023 will be 12.01 million b/d and 12.95 million b/d, respectively.

★OPEC's output went down

Well, the Organization of Petroleum Exporting Countries (OPEC) and countries that work with OPEC to limit supplies are other reasons oil prices are rising. 

In 2020, less oil was needed because of the pandemic, so OPEC cut the amount of oil it made. Through 2021 and into 2022, it slowly raised oil production. Late in 2021, problems in the supply chain affected trade all over the world.

At a meeting in October 2022, OPEC said that starting in November 2022, it would cut oil production by 2 million barrels per day (mb/d). About 2% of the world's production will be cut. 

★Natural gas

Asia used to get its power from coal, but shortages have forced them to switch to natural gas. Parts of Asia and Europe that are getting hotter need natural gas to make electricity.

Because of this, natural gas prices went through the roof in 2021 and stayed high in 2022 because Russia stopped sending gas to Europe. Prices should stay high through 2023.

★Shrinking global crude stockpiles

As the world's oil production keeps going down, countries are forced to use their oil reserves (not including the strategic petroleum reserves). Oil is being used steadily, increasing prices because there are fewer supplies.

The Market's Prediction of Future Crude Oil Prices

Outlook 2023: Expect oil surpluses in the year ahead

People are sure that oil prices will be much higher in 2023 than they are now.

Goldman Sachs thinks that oil will cost $110 per barrel next year.

JP Morgan's new estimate for oil prices in 2023 is $90, less than its previous estimate of $98 because "Russian production will fully return to pre-war levels by mid-2023."

The EIA says that by 2025, the nominal price of Brent crude oil will rise to $67/b (in 2021 dollars). By 2030, global demand is expected to push Brent prices to $79/b. 

Prices will likely be $84/b by 2040. By then, all the cheap oil sources will have been used up, making oil extraction more expensive. Oil prices could be $90/b by 2050.

WTI per barrel is expected to go up to $65 by 2025, $71 by 2030, $81 by 2040, and $87 by 2050.

The EIA thinks oil demand will decrease as utilities use more natural gas and renewable energy. It also assumes that the economy grows by about 1.9% per year and that energy use goes down by 0.4% per year.

As people try to become less dependent on fossil fuels, innovations in energy, transportation, and other industries will greatly impact the price of oil in the future.

Analysis of Crude Oil Investment Opportunities in 2023

What Are The Advantages of Trading Crude Oil on Margin?

◎You can do this at almost any time

One of the best crude oil investment advantages is that you can do it almost all the time. This means the trader can take advantage of any market conditions before the trading session starts in the morning. Instead, they can do so at any time.

◎Use leverage and make handsome money

One of the best things about trading crude oil futures is that you can use leverage and make good use of your capital. As was said above, the price of a crude oil contract right now is $83,170, but you only need to use $5610. 

We call this "leverage" because you have control over more than $83,000 worth of value for a small fraction of the price. This leverage also lets you add other assets to your portfolio, allowing you to make the most money possible.

◎It is very liquid

Trading crude oil is also a great idea because it is very liquid. We all know that the world is switching to energy sources that are better for the environment. Thus, crude oil remains the planet's most widely traded physical commodity. 

This means there are always people looking to buy or sell crude oil. No matter how the market is doing, a trader would be fine with getting rid of their position and getting into the market if they chose to.

◎Great opportunity to make money

In addition to being easy to get, crude oil gives investors a great chance to make money. Oil prices are always going up and down, and they change quickly when news comes out or when the market changes. 

This volatility gives investors a lot of chances to make big money if they can pick the right time to buy and sell. But if your timing could be slightly off, you could lose.

◎Crude oil is an unproducible energy

There is only so much oil in the world, and it won't last forever. 

As demand stays the same and supply goes down, the price has to go up. That's just how economics works. 

Questions People Usually Ask (FAQs)

жHow does crude oil get turned into gasoline?

During the refining process, crude oil is turned into things like gasoline. One barrel (42 gallons) of crude oil can be turned into about 19 to 20 gallons of gas, 11 to 13 gallons of diesel, and 3 to 5 gallons of jet fuel. 

From a barrel of crude oil, refineries can also make many different chemicals and plastics.

жHow do you buy crude oil to invest in it?

There are different ways to invest in the oil industry, but futures contracts are the most straightforward way to invest in crude oil as a commodity. You can also buy an ETF that acts like a crude oil futures contract.

жHow many gallons of oil are there in a barrel?

Each barrel of oil holds 42 gallons.

Final Thoughts on Crude Oil Investment Opportunities 

You need many skills to make money in the crude oil and energy markets consistently. Market players who want to trade crude oil futures and its many derivatives need to know what moves the commodity. Follow us and provide you with crude oil trend analysis and market forecasts on a regular basis.