Crude oil is generally understood to be the most commonly traded commodity in the world. That’s in large part due to its importance in everything from manufacturing to personal and commercial travel. Plus, in addition to being important, oil is also scarce, and it’s only expected to get scarcer as we run through the limited supplies available. Supply and demand have combined to set up a perfect storm when it comes to the price of oil.
Despite moves toward more environmentally friendly fuels, oil is still critically important to the world’s economy. Wars are fought over it. Everyone from politicians to billionaires has benefitted from the enormous importance of the natural resource.
Now it’s time for you to profit. Is it possible to bet on the price of oil? The short answer is yes. The longer answer is that there are any number of ways to wager on future fluctuations in the price of a barrel of crude, from straight-up betting to playing the financial markets.
Put Your Money Down
The most direct way to bet on the price of oil is to do exactly that—go to an online gambling site and place a bet. Most of the larger sportsbooks have sections dedicated to non-sports markets, such as entertainment, politics, current events and financials. And within the financial section, there are usually a few props related to oil’s price.
Currently, BetOnline has a prop asking if the price per barrel will be over or under $72.50 by the end of the month. The over and under have identical odds of -120. (It’s currently just over $73.)
It’s also possible to bet on the price of oil in the prediction markets, although they’re generally outlawed in the United States. So you’d have to travel abroad to take advantage.
A prediction market offers the opportunity to buy contracts related to certain future events. You pay some number of cents—related to the odds of the event occurring—for each contract. If the event occurs, you get a payout of $1. If it doesn’t, you lose whatever you paid for to purchase the now-worthless contract.
Polymarket, one of the largest prediction market sites, offers several contracts related to oil. “Will crude oil hit $100 in 2023?” is selling at 10 cents. Will it hit $120? is selling at 2 cents. You can also buy contracts on whether Saudi Arabia will boost oil production and whether Venezuela’s production will top 1 million barrels a day by the end of the first quarter of next year.
Spread Betting on The Price of Oil
Since we already flew across the pond to participate in prediction markets, let’s look at another form of betting on oil prices that is illegal in the United States. Financial spread betting is a hybrid of financial futures markets and straight-up betting that has potentially unlimited payout and a similarly high level of risk.
In spread betting, investors wager on whether the price of an asset, such as oil, will increase or decrease in the future. The amount that they win or lose is tied to the amount that the price changes. If you pick correctly, then the larger the change in the right direction, the larger your payout. Similarly, if you pick incorrectly, your losses increase as the size of the change does.
Don’t Lose Your Shirt
Since the amount you can lose is significant—a worst, if unrealistic, case scenario in the gold example is that gold suddenly becomes worthless, and the price drops from $1,970 to $0. You would potentially lose $394,000 ($2 percent drop for the entire $1,970).
To avoid catastrophes, most trades use stop-loss orders on their spread bets. A stop-loss order manages risk by automatically closing out your losing trade when it hits a certain point. So, if you bet on gold going up from $1,970 at $2 a point and put in a stop-loss of $1,965, then the most you could lose would be $1,000. Regardless of how far the price fell, when it hits $1,965, your bet is over.
If you “go long” on oil, you’re betting that the price will increase. You then set a per-point amount that you are betting, where each point is one cent in the price. Let’s say you get $2 a point on an increase, and the price goes from $73 to $75. That’s a 200-point increase, so you win your bet and would get paid $400 ($2 per point times 200 points).
However, if oil falls to $70 a barrel, you would lose $600 ($2 per point times a 300-point change in the wrong direction).
Going short is just the opposite. You are betting on a decrease in the price, but the amounts of the money won or lost are calculated the same way as in the above example.
Investing
It’s also possible to “bet” on oil by investing in it. You can buy and sell oil commodities or invest in oil and gas companies. There are also oil ETF funds. ETF stands for Exchange-Traded Funds, and an oil ETF is a collection of oil and gas companies invested in by the fund manager. They are structured to change in a way correlated with the price of oil, and studies have shown that the prices of oil ETFs are far more closely correlated with the price of oil than most individual oil company stocks and energy sector funds.
Bottom Line
If you want the price of oil to mean something more to you than how much you’ll be paying to fill your car’s tank in the next few days, there are any number of ways you can get involved in profiting on the price of oil.
