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Commodity Review: Investing In President Obama’s “Oil Speculators” And “Market Manipulators”

|Includes: PSCE, SCO, Vanguard Energy ETF (VDE)

It's an election year and President Obama recently made a tough talking speech going after so-called "oil speculators" and "market manipulators" who he blames for rising oil prices. Specifically, President Obama has called for:

  • Six times more staff and a $52 million budget increase for the Commodity Futures Trading Commission (CFTC) to supervise the crude oil markets.
  • Raise penalties for market manipulation.
  • Give regulators like the Commodity Futures Trading Commission (CFTC) the ability to require more money to back up "speculative" oil trades.
  • Increase the amount of money energy traders are required to put behind their transactions.

However, the timing of President Obama's get tough call could not be worst in the wake of the Secret Service prostitution scandal in Colombia, GSA bureaucrats partying in Las Vegas scandal and another scandal involving US soldiers armed with cameras and not much common sense. In other words, Americans probably aren't feeling overly optimistic that their elected or unelected government officials can do much of anything - let alone go after so-called oil "market manipulators" or speculators and bring down gas prices.

Moreover, the Wall Street Journal recently had a video segment entitled Phantom Oil Speculators which pointed out that it was odd that the President did not mention just who these "evil doers" are or how they are manipulating oil prices and the oil markets while the Federal Reserve Bank of St. Louis said global demand has been the main driver of higher oil prices over the last decade with oil speculation being the second-largest factor accounting for about 15% of the rise.

Nevertheless and election year politics aside, how can you profit from President Obama's "oil speculators" and "market manipulators"? One way would be to invest in ETFs such as the Vanguard Energy ETF (NYSEARCA:VDE) as most of the ETF's holdings are in stocks classified as Integrated Oil & Gas, Oil & Gas Exploration & Production or Oil & Gas Equipment & Services while more adventurous investors or traders might want to invest in the PowerShares S&P SmallCap Energy Portfolio (NASDAQ:PSCE) which is based on the S&P SmallCap 600 Capped Energy Index.

On the other hand, investors could also invest in the ProShares UltraShort DJ-UBS Crude Oil ETF (NYSEARCA:SCO) that was created by ProShares, which bills itself as the world's largest provider of leveraged and inverse funds, as a bet that oil prices are about to fall.

However, the VDE is up just 0.12% since the start of the year, down 12.8% over the past year and up 9.3% over the past five years while the PSCE is down 2.52% since the start of the year, down 17.4% over the past year but up 31.85% since early 2010. Meanwhile, SCO is down 10.4% since the start of the year, down 7% over the past year but up 135.8% over the past five years. So much for making quick money speculating on the oil markets!

Either way, the Vanguard Energy ETF (VDE), the PowerShares S&P SmallCap Energy Portfolio (PSCE) and the ProShares UltraShort DJ-UBS Crude Oil ETF (SCO) are a great way to keep tabs on and potentially profit from oil price movements or "manipulation." Hence, it would make sense to add these ETFs to your my portfolio list.