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How to invest in oil in Ireland
4 ways to slip this valuable commodity into your portfolio.
For investors in Ireland willing to take risks, falling prices offer the opportunity to grab low-priced stocks that may rise again in time. Oil prices, which are naturally cyclical, hit a historic low in early 2020.
If historical performance offers a lesson, however, it’s that oil is a volatile asset whose value is driven by supply, political and environmental factors — and the demands of energy-driven nations. There’s no telling which direction the oil supply of other oil-producing countries will go, and the Middle East is no stranger to conflict and war that often disrupts the oil industry.
Each of the four investment options available for this commodity comes with risk, given you’re making a bet as to how much oil will trade for in the future. While there are no major oil assets listed on the Irish Stock Exchange (ISE, traded as the Euronext Dublin), there are many others that are Irish-domiciled or listed on other major exchanges like the NYSE—several of which we’ll cover in this article.
1. Invest in oil ETFs.
Worth considering are exchange-traded funds (ETFs), which provide access to a variety of assets without putting all of your money into individual firms. Rather than buying a stock, you’re buying an oil ETF, which typically tracks the performance of several oil stocks.
Purchasing commodity-based oil ETFs is a direct method of owning oil. ETFs allow Irish investors to minimise risk while taking advantage of the performance and general popularity of a particular sector. And oil ETF investors can avoid the risk of exposure to single stocks that fluctuate based on oil prices.
Oil ETFs can be a good choice for those who are new to investing or looking to secure their portfolio, and you have many oil-based ETFs to choose from, covering many companies in the industry. Here are some of the more popular options:
- US Oil Fund (USO): An ETF that directly tracks the price of oil through futures contracts on the benchmark West Texas Intermediate (WTI) crude oil.
- ProShares Ultra Bloomberg Crude Oil (UCO): A leveraged ETF that tracks the price of WTI crude oil and aims to double the daily price movements.
- iShares Oil & Gas Exploration & Production UCITS ETF: An Ireland-domiciled ETF that tracks an index of global companies involved in oil exploration and production.
- VanEck Vectors Oil Services ETF (OIH): An ETF that tracks an index of the stocks of companies that provide support services to oil producers and explorers.
- Instant diversification across the oil industry for a small fee.
- Track record of providing safe and reliable returns.
- Limited control over asset allocation.
- Generally higher volatility than other asset classes.
2. Invest in MLPs.
Existing primarily in the gas and oil industry, a master limited partnership (MLP) is a tax-advantaged corporate structure. It combines the tax benefits of a partnership with the liquidity of a public company. Like a partnership, profits are taxed only when investors receive distributions.
MLPs typically own the pipelines that carry the commodity from one place to another, and are known for paying high dividends, which makes them a popular option for investors in Ireland who are seeking a long-term stream of income. MLPs are still volatile, though, and risks could come from a slowdown in energy demand, environmental hazards, and tax law reform.
You’ll find MLPs listed in a brokerage account just like stocks and ETFs.
- Offers an attractive dividend payment.
- Easily purchasable through financial advisers or online brokers.
- Subject to general market risk and low energy demand.
- Not necessarily in lockstep with the price of oil.
3. Invest in oil companies.
A simple way to invest in oil in Ireland is by buying stocks of oil companies like Falcon Oil & Gas or Tullow Oil on the Euronext Dublin. Alternatively, you can invest in oil stocks on other exchanges. Some examples include:
- Chevron (CHV)
- Royal Dutch Shell (RDS.A or RDS.B)
- Total (TOT)
- British Petroleum (BP)
As the cost of oil changes, so do the values of these companies — although there’s no guarantee, given the number of factors they depend on.
Understanding the energy cycle, the industry’s landscape, and the impact of price fluctuations can help you find undervalued oil-related assets.
- Large range of stocks, and cash out when you want.
- Convenient access through an online broker or financial adviser.
- Large oil companies are involved in refining, which doesn’t benefit from higher oil prices, and so stocks aren’t necessarily in lockstep with the price of the commodity.
- Individual stocks can be more volatile than diversified ETFs.
4. Invest in oil futures.
Futures are the most direct way to purchase this commodity without literally purchasing barrels of oil, but they’re a more advanced and complex investment option that isn’t offered by the majority of brokerage accounts. You buy a futures contract through a commodities broker in Ireland to purchase oil at a future date at a specified price. Purchases must take place before the contract expires.
Futures are extremely volatile and riskier than other investment options. You must be correct on the timing and price movement to see a profit. If you’re interested in futures, you’ll first have to choose a brokerage account that supports futures trading. In Ireland, that includes platforms like Degiro and Interactive Brokers.
- A highly traded asset with accurate real-time prices.
- Requires a specific brokerage platform that offers futures trading.
- Volatile investment with limited predictability in how prices will fluctuate.
- Possibility of contract expiring worthless if not exercised.
How much is oil worth today?
The graph below tracks the price per barrel of oil in US dollars over time.
What are the risks of investing in oil?
While long-term investments can be highly profitable, you should understand the risks before making any in the oil & gas sector. These include:
- Price volatility. Wide price fluctuations can occur daily due to unpredictable changes in supply and demand.
- Dividend cuts. If a company is unable to earn enough revenue to fund payments to investors, it may cut dividends.
- Oil spill risk. Accidents can cause a company’s share price to drop significantly. In 2010, BP saw a decline of more than 55% to its stock in the wake of the Deepwater Horizon oil spill.
In Ireland, you can get involved in oil through four main methods, each with its own set of risks. Before you buy, explore investment options for other tangible goods through multiple trading platforms.
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