Oil ETFs: Worth Investing In Anticipation of a Price Rebound?

Last week, I talked about CGM Focus Fund (CGMFX) and how the fund was hammered after oil prices plunged. Currently traded around $37 a barrel, crude oil prices have lost more than $100 since last July. Even though OPEC has pledged deep cuts in oil production, demand for oil was hampered as global economies entered recession. Yesterday, the Commerce Department reported the slimmest trade deficit in November since 2003 at $40.4 billion, thanks to falling demand for foreign goods including crude oil.

But will oil prices stay this low if the economy recovers later this year, as some economists have predicted? The answer is likely to be No. Some analysts said oil could be trading at $60 a barrel on average this year, according to Bloomberg. If that’s indeed the case, now may be a good time to position your investment (if you are investing in oil at all) for the upward swing.

For small investors, the easiest way to invest in oil and oil related services is using exchanged-traded funds (ETFs) because anybody can buy and sell ETFs from any broker, with no, or a small, initial deposit required to open an account at places like TradeKing or Zecco. As for what to invest, check out these oil and oil service ETFs:

• ProShares UltraShort Oil & Gas (DUG)
• Oil Services HOLDRs (OIH)
• United States Oil (USO)
• PowerShares Dynamic Oil & Gas Services (PXJ)
• PowerShares DB Oil (DBO)
• iShares Dow Jones US Oil & Gas Ex Index (IEO)
• iShares Dow Jones US Oil Equipment Index (IEZ)
• SPDR S&P Oil & Gas Equipment & Services (XES)
• SPDR S&P Oil & Gas Exploration & Prod (XOP)

Morningstar.com has more oil ETFs tlisted han what I am showing above. I left out those with very small trading volumes. As happened last year to some Claymore ETFs, if nobody trades in it, it won’t last, no matter how good the concept is. So when you choose an ETF, make sure you select the ones with trading volumes.

Comments

[bananatrader:]

If you're bullish on oil, why would you recommend ProShares UltraShort Oil & Gas (DUG)?

Jan 14 09:23 AM

[Swedish inv...:]

bananatrader, possibly to short it...........

Jan 14 10:19 AM

[AndrewBaker:]

Beware which ETF you buy if investing with a view to the oil price. Check out the index/sector/constitue... of the ETF first to make sure it covers what you want. For example, ProShares UltraShort OIl & Gas (DUG) covers stocks in the oil and gas industry and not the price of crude oil. Therefore, oil may be going down, but DUG could go down too if oil industry stocks are perceived at the time by the market to be due a re-rating upwards. Always know what you are investing in, before you do!

Jan 14 11:39 AM

[snoopyjc:]

On StockTwits, most everybody trades DXO - Double Long Oil. The shares are cheap, too (but that means you need to buy a LOT of them - good if you have a fixed price commission).

Jan 14 04:36 PM

[toobad41:]

In order to trade oil this year at an "average" of $60 a barrel we would have to have it trade for a period of time considerably above $60. I don't see that happening. It may trade at or above $60 towards the end of the year.

Jan 14 05:03 PM

[Urbane Gori...:]

I think I'd rather that Heebner had stayed long commodities... His switch over to financials and auto manufacturers came just in time for the investors to be hammered again.. And we didn't even get a breather from our pummeling as he sat on the commodities too long.And I'm not even down as much as other people either. I'm beginning to think I should short anything Heebner buys... Well except he plays his cards so close to his chest...

jegan

Jan 15 12:51 AM

[donzelion:]

Oil and gold are anti-inflation hedges, not investments.

If you believe in capitalism, then people (and companies) create value, not commodities. If you're a closet mercantilist, buy the commodities and hope the government will use its power to transform them into value. If you're a closet communist, don't buy the commodities, because the government will take them away, along with everything else.

Jan 15 02:50 AM

[Kanman:]

I'm sure he meant "DIG" not DUG.


On Jan 14 09:23 AM bananatrader wrote:

> If you're bullish on oil, why would you recommend ProShares UltraShort
> Oil & Gas (seekingalpha.com/symbo...)?

Jan 22 05:58 PM