If you wanted to gain exposure to the oil market 20 years ago you would have to do it by trading commodity futures. However, that changed 10-15 years ago with the creation of Oil ETFs.
Currently, there are plenty of Oil ETFs to chose from. Let’s take a look at some of the most popular ones and how they differ among each other.
Crude Oil ETFs
If you’re looking for the closest thing to a pure play on oil then consider crude a oil ETF. These ETFs don’t invest in individual companies, instead they focus on oil futures and similar products.
United States Oil Fund (NYSE:USO) attempts to track the daily price movements of West Texas Intermediate light, sweet crude oil. Its benchmark is the near month crude oil futures contract traded on the New York Mercantile Exchange. The ETF invests mainly in crude oil futures contracts and other oil related futures contracts.
The gross expense ratio for the fund is 0.77%
Path S&P GSCI Crude Oil Index ETN (NYSE:OIL) Technically its an exchange traded note and not an ETF. Exchange traded notes are debt securities and have no principal protection.
The S&P GSCI Crude Oil Total Return Index is a sub-index of the S&P 500 GSCI Commodity Index. The index reflects the returns that are possibly available through a non-leveraged investment in the West Texas Intermediate crude oil futures contract.
The gross expense ratio for the fund is 0.75%
Oil Equipment & Services ETFs
The sector consists of companies involved in oil and gas related services. They include but not limited to: cleaning, testing, erecting , repairing and dismantling oil and gas field rigs. In addition, to pipeline related services. Furthermore, they could include exploration, like geological surveying and mapping. Other businesses included in the sector manufacture oil and gas wells, pipeline, pumping, and drilling.
VanEck Vektors Oil Services ETF (NYSE:OIH) attempts to replicate the price and yield performance of the MVIS U.S. Listed Oil Services 25 Index. It invests in the most liquid companies in the sector with a focus on the largest companies in the space. It invests in both domestic and U.S. listed foreign companies.
The top ten holdings of the fund include: Schlumberger Ltd; Haliburton Co; Technipfmc Plc; Helmerich & Payne Inc.; National Oilwell Varco Inc; Tenaris Sa; Baker Hughes A Ge Co; Core Laboratories Nv; Patterson-Uti Energy Inc; and Transocean Ltd
The gross expense ratio for the fund is 0.40%
SPDR S&P Oil & Gas Equipment & Services ETF (NYSE:XES) attempts to replicate the results to the total return performance of the S&P Oil & Gas Equipment & Select Industry Index.
By investing the ETF you’ll gain exposure to the oil and gas equipment and services segment of the S&P TMI.
The funds top holdings include: Helmerich & Payne Inc.; Nabors Industries Ltd.; National Oilwell Varco Inc.; TechnipFMC Plc; Haliburton Company; Schlumberger NV; Core Laboratories NV; Dril-Quip Inc.; Oil States International Inc.; Noble Corporation plc.
Gross expense ratio for the fund stands at .35%
Energy Equity ETFs
Energy Select Sector SPDR Fund (NYSE:XLE) attempts to to track the performance of the Energy Select Sector Index. Its goal is to represent the energy sector as it pertains to the S&P 500 Index.
You’ll find companies that are involved in oil, gas and consumable fuel, energy equipment and services industry.
Nearly 40% of the ETF consists of two holdings, Exxon Mobil Corporation and Chevron Corporation.
Other holdings include Schlumberger NV; ConocoPhillips; EOG Resources Inc; Occidental Petroleum Corporation; Halliburton Company; Valero Energy Corporation; Phillips 66; and Marathon Petroleum Corporation.
The fund has a gross expense ratio of 0.13%
Given it’s heavy weight on Exxon and Chevron, it carries “individual stock risk” compared to an ETF that equally weights its investments.
iShares U.S. Energy ETF (NYSE:IYE) attempts to track the investment results of an index composed of U.S. equities in the energy sector. It tends to invest in companies that produce and distribute oil and gas.
It too is heavily weighted in Exxon Mobil Corp and Chevron Corp, the stocks comprise about 37% of the total funds investments.
Other top holdings include: Schlumberger NV; ConcoPhillips; EOG Resources; Occidental Petroleum Corp; Halliburton; Valero Energy Corporation; Phillips; and Marathon Petroleum Corp.
The expense ratio is around 0.44%
Leveraged Oil ETF Choices
ProShares Ultra Bloomberg Crude Oil (NYSE: UCO) attempts to produce two times the daily performance of the Bloomberg WTI Crude Oil Subindex.
Like most leveraged ETFs, the funds can only accurately track the benchmark for a single day. In other words, you might see divergence if you hold the ETF for longer than one day. That said, it makes it better suitable for day trading than for long term investing.
ProShares UltraShort Bloomberg Crude Oil (NYSE: SCO) attempts to produce two times the inverse daily performance of the Bloomberg WTI Crude Oil Subindex.
This 2X short oil ETF is an option for traders who wish to short the oil market without having to post margin or have a futures account.
Factors To Consider Before Investing In An Oil ETF
The price of oil is driven by the forces of supply and demand. Some market pundits believe oil price fluctuations can help determine changes in inflation. For example, consumer prices tend to drop when oil prices fall. On the other hand, they’ll see a hike when oil prices rise.
When oil prices rise people tend travel less, negatively impacting the airline industry.
One of the most important reports oil traders follow comes out every Wednesday. It’s issued by the Energy Information Agency
The Weekly Petroleum Status Report informs market participants in the weekly changes in crude oil inventories, gasoline and distillate inventories. As well as, the operating rate of U.S. refineries.
That said, the Organization of Petroleum Exporting Countries (OPEC) still plays a major role on the price of oil fluctuates. OPEC nations control about 40% of the world’s supply of oil. The group meets at least once a year to discuss production levels.
The energy market plays a huge role in the overall economy. Investors looking for an easy way to gain access to the sector should consider an Oil ETF.
You have the option of selecting a fund that closely resembles the performance of oil or one that invests in individual stocks related to the sector.
As with any investment make sure to do your homework and read through the fund’s prospectus.