ETF Update: Oil Service ETFs, Natural Gas Plays

Oil Futures ETFs Aren't the Only Ones Affected As the Price Moves

The retreat of oil service-focused ETFs Monday was a reminder for investors to not get so hung up on the price of oil that they ignore all else.

While funds such as United States Oil (USO) undoubtedly benefit from the rising prices, other funds feel the affects whether prices go up or down, too, so be sure to look around if oil pulls back and make sure the ETFs you're holding aren't getting dragged. It isn't always the most obvious ETFs that are affected - sometimes the impact can extend beyond them.

Some of the oil service-related ETFs are:

• iShares Dow Jones US Oil & Gas Exploration Index (IEO), up 19.4% year-to-date
• Oil Services HOLDRs (OIH), up 7.7% year-to-date
• SPDR S&P Oil & Gas Equipment Services (XES), up 14.4% year-to-date

Oil and gas today have hit new records, reports John Wilen for the Associated Press. Analysts are beginning to wonder if gas prices will stick to their old pattern of peaking around Memorial Day, then steadily declining as summer deepens. The cost of gas can be hedged with United States Gasoline (UGA), which is up 17.7% since its Feb. 28 inception.

The rising prices seem to be eating into demand for oil and petroleum products in the United States and Europe. Maybe that will bring prices back down from the stratosphere.

The prices have given top performances to natural gas and the energy sector for 2008, and this will only continue if there's truth in analysts' predictions that oil will rise to $200 for a barrel in the near future.

The United States Natural Gas (UNG) has risen the most year-to-date with a 42.6% return, according to Morningstar. Supply and inventory issues are pushing the ETF the right direction as many anticipate higher oil prices. UNG can also be used as a hedge for energy exposure, and tracks in percentages the movement of natural gas futures on the NYME, explains John Spence for The Wall Street Journal.

The fast growth in the oil and gas sectors has many suspecting we're in a bubble ready to burst, including Michael Kahn for Barron's. Are we? Only time will tell. The surest way to protect yourself on the downside is by having your exit strategy firmly in place if and when the downturn begins. In the meantime, don't fight the trend.

More Costly Natural Gas and Electricity Could Burn Cash, But Help ETFs

Get ready for a spike in electricity costs - it might hurt wallets more, but it could at least benefit ETFs.

California State Assemblyman Chuck DeVore says in Red County that if you think gas is eating up your disposable income, wait until you see your electric and natural gas bills in the next year.

California receives 42% of its electricity from natural gas, and homes use the commodity for everything from cooking to heating. Prices for it have increased 45% so far in the last year, and the Wall Street Journal recently reported that costs may double again soon. Ann Davis and Russell Gold for the Wall Street Journal say that the global appetite for natural gas is on the rise.

But as this chart courtesy of the Wall Street Journal shows, the United States is actually on the lower end of the price range:

It once was a regional commodity, often consumed where it was produced. But there have been innovations in transporting it, and the global trade is now in full force.

Coal and gas power 70% of America's grid, as well, and the price of coal has doubled. This will ultimately translate into more costly electricity.

Suddenly, reading by candlelight doesn't seem like such a bad idea.

Investors may find this as an opportunity to hedge the rising energy costs:

• United States Natural Gas (UNG), up 53.5% year-to-date
• Market Vectors Coal (KOL), up 20.3% year-to-date
• Utilties Select Sector SPDR (XLU), down 4.8% year-to-date

Comments

[g.pincheot:]

I'm starting to hear more about nuclear energy. I see that Invesco
has a new ETF, PKN - a global nuclear energy fund. Any chance you could give us a sense of where we are with nuclear and potential
future profit directions?

2008 May 15 10:06 AM

[User 150045:]

Great map

2008 May 15 11:48 AM

[User 187557:]

UNG has been doing a poor job of tracking the actual price of the Henry Hub Natural Gas. In the past 52 weeks, price of Natural Gas has risen more than 40%, and UNG was up about 4% in the same period. FCG, on the hand, has been up more around 45% in the past 52 weeks, which tracks the price of Natural Gas much more closely. I believe UNG and FCG are the only 2 Natural Gas ETF available in the U.S. right now.

2008 May 15 01:19 PM

[LA:]

Great heads up on PKN.
Thanks.
I didn't know about it.

On May 15 10:06 AM lminsky wrote:

> I'm starting to hear more about nuclear energy. I see that Invesco
>
> has a new ETF, PKN - a global nuclear energy fund. Any chance you
> could give us a sense of where we are with nuclear and potential
>
> future profit directions?

2008 May 15 06:51 PM

[spitzge:]

Does anyone know of an etf which specifically covers the transportation--marine shipping group (as in dsx drys egle etc)? No help so far from merrill lynch. smith barney or schwab

2008 May 17 11:29 AM

[SandraD:]

If you find one, please let me know as I have been looking for the same thing. I have been doing alot of research on ETF's and have not yet found one. Shoot me an email at :[e-mail] please if someone recommends one. Thanks


On May 17 11:29 AM spitzge wrote:

> Does anyone know of an etf which specifically covers the transportation--marine
> shipping group (as in dsx drys egle etc)? No help so far from merrill
> lynch. smith barney or schwab

2008 May 20 12:55 AM