Investment Idea

Oil or oil companies?

Karl O.Strøm
29/04/2022 | 5 min read
Oil Rig.jpg

Many people look at the oil price and trade oil stocks, but there are instruments that fluctuate more directly with the oil price.

Oil is one of the world's most important raw materials, and its price is often used as a measure of the world's energy price. The price of oil is therefore a key factor in the price of most of what is to be produced, transported or consumed.

Both brokerages and a number of other organizations regularly publish oil analyzes. The brokerages make direct price estimates and use these further in their other company analyzes. Energy agencies such as EIA and IEA focus on estimated supply / demand and less on price, while OPEC makes statements and calculations of actual production going forward. All this information is again important input in the brokerages' price calculations.
Statements from these actors can in themselves be price-driving. In addition, the ongoing international news flow will occasionally contain messages that could lead to sudden movements in the price of oil. Significant price fluctuations on a liquid commodity are obviously interesting for traders. But what should one choose to trade in?

Oil and oil futures

Well, the obvious choice for the purest exposure will be the oil itself. However, this is a physical commodity, which in practice is not relevant to trade for many. Some of us may have grown up with a barrel of kerosene in the garage, but most will struggle to receive and store 1,000 barrels of crude oil.
An alternative is to trade commodity futures, which are standardized contracts for future oil supply. This type of instrumentss has many features in common with futures on stock indices, something I described in this previous blog post. It is the price of oil futures with the first delivery month that is what you are really talking about when refering to the "oil price". Some brokerages offer trading in oil futures on both the North Sea oil (Brent) and the US reference oil (WTI). Like futures on stock indices, however, this is a product reserved for the professionals. The minimum volume for trade is 1 oil contract, and it is for the delivery of 1000 barrels of oil. The price for this is at the time of writing close to 1 million NOK. You must also make sure to sell the contracts before they expire, otherwise you must be able to take physical delivery and then be back to the above issue. Thus, direct trading in oil futures is also irrelevant to most people. 

Oil stocks

The oil shares are shares in the companies that produce and sell crude oil, in English called Oil Exploration & Production (Oil E&P). There are many companies in this category, with well-known names for most. Equinor (formerly Statoil), Aker BP, Shell, Exxon (Esso), Vår Energi, DNO, BP, ENI, Chevron, to name a few. The shares of these companies will fluctuate to a large but varying degree in line with oil prices. The price chart below shows Equinor against the North Sea oil (GRT) measured in NOK. As we see, there is a significant degree of covariation, and EQNR is also one of the stocks that has historically been closest to the oil price. But no oil companies fluctuate completely in line with oil prices, and it may be interesting to look into why.

The oil companies have:

  • Different production profile (Mix oil vs. gas, and gas is traded at other prices).
  • Different contractual obligations, ie they may have sold the oil and gas at different prices than those you see in the market.
  • Different development at the production level (rising, flat or falling).
  • Different financing (debt ratio, interest cost, payment profile and refinancing needs).
  • Different production costs (what it costs to get a barrel of oil up).
  • Different tax rates depending on where they operate.
  • Different management and profile of ownership (i.e. dominant owners).
  • Different investment profile (how much of the cash flow is tied up in future investments.
  • Different degrees of pure oil / gas production. For example, many companies also own refineries and downstream canals (all the way to the petrol stations we see along the roads).
  • The oil price changes continuously every day, but the oil companies report their figures quarterly.

Shares of all types also fluctuate in line with other factors. Sentiment changes, interest rates, currency, global news and other factors that lead to changes in positioning. Acquisitions, mergers and the like will also affect prices beyond the interest rate oil price movements. The list is almost inexhaustible.


​​​​​​​Equinor (black) against the oil price Brent Spot Indicator (blue) converted to Norwegian Kroner. We see them in periods covariate closely, and in others not. - Source Infront.

In summary, one can say that it is undoubtedly interesting to trade oil shares on movements in oil prices, but it will not be a pure exposure.

Derivatives on the oil price

A third alternative is to look at the significant range of securities that in total can be called «derivatives on the oil price». Common to these is that you own a security where the value development is linked to the development of the oil price, but you do not own oil directly. There are a number of these, listed on several stock exchanges. Some are exchange traded funds (ETFs), but which hold oil contracts instead of stocks. The largest and most famous of these are traded in the United States. One must thus have trade access to that market and relate to brokerage and currency exchange in order to be able to take positions in these. Such can, however, be a good choice if you want to have an unlevered exposure to the oil price.
However, short-term traders often prefer to trade in securities traded on their home market, as long as they provide the right exposure. On several exchanges, there are trading products where it is possible to take both long and short, as well as get different degrees of geared exposure to the oil. New this year is that the international player Vontobel has launched a selection of such trading products in Norway as well. These are Bull & Bear certificates, with built-in leverage on e.g. 2X, 4X or 5X. The number before the x indicates the degree of exposure beyond equity. Do you buy e.g. Bull Oil X3 for NOK 10,000 means that you have an exposure to the oil almost as if you had made an oil purchase for NOK 30,000. Those you trade against in the market may be others who own the product, but most often it is a Market Maker who sets continuous buying and selling prices. The difference (spread) between purchase and sale price reflects the difference between buyer and seller in the underlying (oil), as well as in the currency (USDNOK), plus their own profits. The volumes offered on the buy and sell side are normally of a size that should be sufficient for most private traders.

As always, it is important to familiarize yourself with how such trading products work. There are risks associated with securities trading, and if you are not well acquainted with how both leverage and shorting work, then this is hardly something for you. Trading products are designed to meet the needs of those who want to make short-term trades. If you are one of these, these products will be able to give you interesting opportunities. 


Direct trading in oil or oil futures is mainly reserved for professionals. Taking positions in oil stocks to play on price movements in the oil may be an OK alternative, but it is an indirect position, and the oil stocks are affected by many factors other than the oil price. For short-term positions, trading products related to oil can provide good exposure to the price movements you want to trade. However, it is important to know how these products work when oil prices and exchange rates move. Having a good plan in terms of entry, stop-loss and size of the position will, as always, be important in controlling the risk you take.


After many years in the brokerage business, in 2021 I wrote the book "Paleo Trading: How to trade like a Hunter-Gatherer” and launched a hedge fund that trades according to the same principles. Vontobel asked if I would write some posts for their blog, something traders and managers do in other countries as well. I want to emphasize that none of what I write is to be regarded as personal advice or in any other way encouragement to take positions. Everyone must be responsible for their own decisions and familiarize themselves well with the products they use. There is a lot of info available.

But broadening your knowledge with more options when trading, yes that's a good thing.

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