Riding the Oil Rollercoaster: ETFs, Stocks, and Futures for Aussie Investors

In the world of investing, few commodities influence markets like oil. Its price has ripple effects across industries, economies, and investor portfolios. In recent months, oil prices have proven exceptionally volatile, surging on geopolitical tensions and retreating just as quickly. For Australian investors looking to capitalise on these swings, understanding the right instruments—from ASX-listed oil stocks to ETFs and futures—is critical.

We’re not talking about short-term speculation here; it’s about how Aussie investors can navigate oil’s ups and downs with the right mix of strategy, awareness, and risk control.

 

Why Oil Prices Are So Volatile in 2025

The oil market in 2025 has been a story of extremes. In mid-June, tensions flared in the Middle East when Israel launched strikes on Iranian nuclear sites. Iran, in response, threatened to shut down the Strait of Hormuz, through which nearly a fifth of the world’s oil supply passes. This sent Brent crude surging more than 11% in a matter of days as markets braced for a supply crunch. Investors flocked to energy stocks and oil ETFs, betting on higher prices amid the uncertainty.

However, by the end of June, a ceasefire agreement between Israel and Iran defused the immediate threat. Oil prices quickly reversed, with Brent crude falling back below USD 70 per barrel. Simultaneously, OPEC+, the oil cartel that includes Saudi Arabia and Russia, announced a production increase of over 400,000 barrels per day starting in August. This combination of an improved supply outlook and easing geopolitical tensions weighed heavily on prices.

Adding to the volatility is the slow demand recovery from China, where factory activity has remained sluggish. As the world’s second-largest oil consumer, China’s underwhelming rebound has undercut bullish sentiment. This tug-of-war between supply shocks and demand uncertainty is what’s fuelling oil’s rollercoaster ride in 2025.

 

How Aussie Investors Can Ride the Wave: Stocks, ETFs, and Futures

There are several ways for Australian investors to gain exposure to oil, each with its profile of risk, return, and complexity. Choosing the right vehicle comes down to your goals, time horizon, and comfort with volatility.

Investing via ASX-Listed Oil Stocks

One of the most straightforward approaches is through domestic oil and gas companies listed on the ASX. The most prominent among them is Woodside Energy (ASX: WDS), a large-cap producer with global operations. Its share price tends to rise when oil prices rally, but with less volatility than the oil price itself. In mid-June, for example, Woodside shares climbed nearly 3% as oil surged.

Santos (ASX: STO) is another major energy player, benefiting from both oil and gas production. It too moved higher during the price spike, gaining around 2% in line with market sentiment. Then there’s Beach Energy (ASX: BPT), a smaller-cap stock with a higher beta, meaning it’s more responsive to oil price moves. During the June spike, Beach rallied more aggressively, highlighting its leveraged exposure.

What makes these stocks appealing is their dual function: they provide exposure to oil while also offering dividends and growth potential. But that comes with caveats. Investors must assess company fundamentals, debt levels, ESG liabilities, and project execution risks. These stocks don’t always track oil prices one-for-one, particularly when company-specific issues come into play.

Oil Exposure via Exchange-Traded Funds (ETFs)

For those who want a purer oil-price play without picking individual stocks, ETFs offer a simple and efficient path. On the ASX, the most relevant fund is the Betashares Crude Oil Index ETF – Currency Hedged (ASX: OOO). This ETF aims to track the performance of oil futures, not physical oil itself, and includes currency hedging to protect Australian investors from USD fluctuations.

OOO spiked around 10% in mid-June as oil surged and then pulled back as prices softened. This demonstrates how tightly the ETF mirrors oil market movements, ideal for tactical plays. Another option is the FUEL ETF, which also provides oil exposure but without currency hedging. Some investors prefer FUEL for its simplicity, though it leaves them exposed to AUD/USD exchange rate swings.

However, oil ETFs come with a hidden cost: the “roll yield.” Because ETFs invest in futures contracts that must be rolled over monthly, they can lose money when futures prices are higher in the future than in the present, a condition known as “contango.” Over time, this erodes returns and makes long-term holding less attractive.

Futures and CFDs: For Sophisticated Traders

For investors seeking precision and leverage, trading oil futures or contracts for difference (CFDs) offers the most direct exposure. Futures allow you to bet on oil’s price at a specific point in the future, while CFDs track oil’s price in real-time with the flexibility to go long or short.

These instruments can deliver outsized gains, especially in volatile periods, but the risks are significant. Futures are margin-based, meaning you only post a fraction of the trade’s value upfront. A sharp move in the wrong direction can trigger margin calls or even wipe out capital. CFDs also carry risks tied to liquidity and counterparty reliability, making them suitable only for seasoned investors with clear risk management strategies.

 

Weighing the Pros and Cons of Each Instrument

Direct equities in oil companies give you partial exposure to the commodity, combined with company-specific factors like dividends, management quality, and long-term growth. They’re easier to hold over time, especially within a diversified portfolio. But they also expose you to company risks, like missed production targets or environmental blowback.

ETFs like OOO and FUEL offer a more concentrated oil play, reacting quickly to market changes. They’re easy to trade on the ASX, suitable for both tactical positioning and sector hedging. Still, they’re subject to roll yield costs, and their performance can diverge from spot oil prices over time.

Futures and CFDs provide the cleanest and most powerful exposure, but at the cost of complexity and risk. One wrong trade can be costly, and you need to be comfortable with leverage, volatility, and the technical mechanics of derivatives.

 

How Oil Price Movements Impact Broader Markets

Oil isn’t just a commodity; it’s an economic driver. When oil prices rise, energy producers tend to outperform, and the Australian dollar often strengthens due to our commodity-linked economy. This benefits sectors like mining services, infrastructure, and even parts of the financial market tied to resources.

However, rising oil prices are a drag on transport and travel-related industries. Airlines like Qantas face higher fuel costs, which squeeze margins and may lead to fare hikes. Likewise, logistics firms, freight carriers, and tourism operators all feel the pinch when oil spikes. Consumers, too, face rising costs at the petrol pump, which can dent discretionary spending.

Moreover, if oil prices stay high, inflationary pressures could build, potentially influencing the Reserve Bank of Australia’s monetary policy. A sustained oil rally might delay interest rate cuts or even lead to a more hawkish stance, affecting bond yields and equity valuations more broadly.

 

Building a Sensible Oil-Investment Strategy

In our view, Australian investors should approach oil with a clear strategy. For long-term exposure, adding stocks like Woodside and Santos to your portfolio offers reasonable oil sensitivity while contributing to income through dividends. These companies also serve as inflation hedges in times of rising commodity prices.

For more active investors or those with shorter time frames, oil ETFs like OOO can provide targeted exposure to oil price moves without company-specific risk. They’re ideal for capturing thematic swings or responding to macroeconomic shifts.

If you’re confident in your trading skills, a small allocation to oil futures or CFDs could add an aggressive edge to your portfolio. But strict discipline and risk controls are non-negotiable. These instruments amplify both gains and losses, and are best used as tactical rather than core positions.

 

Final Thoughts: Managing the Oil Rollercoaster

There’s no denying that oil markets are unpredictable. But with volatility comes opportunity. The key for Aussie investors is to match their investment tools to their goals. Are you after long-term stability with oil upside? Stick to the ASX energy majors. Want more direct commodity exposure? Go with ETFs. Looking for big swings and fast trades? Futures might be your ride—just buckle up tight.

At the end of the day, oil remains a geopolitical and economic lever. It’s tied to global tensions, central bank decisions, and industrial demand. By staying informed, diversifying your exposure, and choosing the right instruments, you can turn this rollercoaster into a ride worth taking.

 

What are the Best ASX Stocks to invest in right now?

Check our buy/sell tips

 

FAQs

• Is now a good time to invest in oil stocks on the ASX?

  That depends on your investment goals. If you’re seeking long-term exposure to energy and want dividend income, oil stocks like Woodside or Santos can be solid additions. But keep in mind the sector’s volatility and sensitivity to global events.

• How closely do ETFs like OOO follow the oil price?

  OOO tracks oil futures rather than spot prices, so while it moves directionally with oil, its performance can differ due to factors like roll yield and futures curve structure. In backwardation, returns are more favourable; in contango, gains can erode over time.

• What risks should I consider before trading oil futures or CFDs?

  Oil futures and CFDs carry significant risk, including leverage exposure, margin calls, and liquidity issues. They’re best suited for experienced traders who can actively monitor positions and have a clear exit strategy.

• Can oil be part of a diversified investment portfolio?

  Yes. Including oil exposure, whether through stocks, ETFs or commodities, can diversify your portfolio, especially during inflationary periods. But it should only be a portion of your overall holdings due to the sector’s volatility.

• Do high oil prices always mean strong returns for energy stocks?

  Not always. While higher prices generally benefit oil producers, stock performance also depends on company-specific factors such as debt levels, project delivery, ESG concerns, and management quality. It’s important to look beyond the commodity price.