Brokers offer oil trading by the means of Contracts For Difference (CFDs). The instrument allows you to only pay for the difference between the opening and closing price. Let us illustrate this with an example:

Let’s say the current price of an oil future is $70 and you believe the price will go up in the next few days. Normally you would have to pay $70 for every future contract. So with an available capital of $700 you would be able to buy 10 contracts. With CFDs you can buy a lot more of them. You could buy a CFD with a stop loss level at $65. In this case you only have to deposit $5 per contract, since this is the maximum risk you are taking. So with the same $700 now you can suddenly buy 700 / 5 = 140 contracts.

The use of CFDs greatly improves the accessibility of the oil trading market to individuals. Unfortunately, U.S. brokers are by law not allowed to offer CFDs. For this reason you will not be able to find a NFA regulated broker that offers trading in oil futures to Americans.

The are two ways for U.S. citizens to be able to trade crude oil. The first one is to make use of a foreign broker. Two of those brokers are ForexYard and AvaFX, they accept U.S. clients. (Update 2010: Not anymore)

The second option is to trade the United States Oil Fund (USO). This fund is a domestic exchange traded security designed to track the movements of light, sweet crude oil. The idea is that every percentage change in the price of an oil future is reflected in this fund. So if the price of crude oil increases 2%, the price of an USO security will also increase 2%. The fund is listed at the NYSE Arca, the all electronic US trading platform of NYSE Euronext.