Forgot your password?

Why you Should Invest in Oil Etfs

By Edited Nov 13, 2013 0 0

Some types of oil ETFs available

Crude oil ETFs (exchange traded funds) are designed to track crude oil price.  The two main global standards for crude oil are West Texas intermediate (WTI) and Brent crude.  WTI represents the North American spot price for delivery at Cushing, Oklahoma.  Brent crude is the European equivalent of WTI and, as of late more closely represents the real crude oil price.

There are a decent number of oil ETFs to choose from a couple that are long oil are: United States Oil Fund (ticker symbol: USO) this oil ETF tracks West Texas Intermediate (WTI) and, United States Brent Oil Fund (ticker symbol: BNO) which tracks Brent crude (European delivery contract).These are only two of the funds available to the investor. Both of these funds are optionable so, you can implement a covered call strategy if you wish. Perhaps you aren’t bullish at all and, figure it is headed down? In that case there are several short oil ETFs also. Both long and short ETFs have higher leveraged options also.

Tight supply is bullish for oil ETFs

The primary factor driving energy prices and thus oil ETFs is a leveling off conventional oil supply. CEOs of top oil producing companies have admitted that the cheap easy crude is all but gone. That basically leaves deep off shore and, unconventional sources such as oil sands and  shale. Obviously this supply factor is very bullish for oil ETFs and, indeed many other financial instruments that deal with fossil fuels.

The largest volume of new oilfields was discovered 30-40 years ago. While we are still certainly finding new reserves all the time the cost is prohibitive. Additionally when we do find a new oilfield it is unlikely to be anything like the super-giant oilfields of old.

Regarding demand there is a huge push in places such as India and, China to build large fleets of automobiles. This coupled with their collective push to have the trappings of wealth such as air conditioners and refrigerators is using massive amounts of energy. Both sides of the supply-demand relationship are very bullish for oil ETFs.

Simplify your investing decisions.

Choosing ETFs makes investing in the energy sector a lot easier for many investors. By focusing only on the markets direction you remove many of the variables you would have by investing in a specific producing company. Volume in many oil ETFs is decent also, meaning you can exit your position whenever you need to.



Add a new comment - No HTML
You must be logged in and verified to post a comment. Please log in or sign up to comment.

Explore InfoBarrel

Auto Business & Money Entertainment Environment Health History Home & Garden InfoBarrel University Lifestyle Sports Technology Travel & Places
© Copyright 2008 - 2016 by Hinzie Media Inc. Terms of Service Privacy Policy XML Sitemap

Follow IB Business & Money