A Closer Look at Energy ETF Opportunities

Since June 2017, oil prices rocketed from a low of $42.05 to a high of $64.30 in early 2018.

At the time, that was the highest crude oil prices had been since May 2015 thanks in part to OPEC production cuts.  We were also seeing strong demand growth in China, too.

It’s the reason Exxon Mobil (XOM) jumped from a 2017 low of $75 to $87.50. Chevron (CVX) ran from $101 to $133.60.  Conoco Phillips (COP) exploded from $42 to $60.

But some of the biggest winners have been related energy ETFs at less cost.

Pro Shares Ultra Bloomberg Crude Oil (UCO)
Price as of March 21, 2018: $27.69
Expense Ratio: 0.95%


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With the UCO, the fund will seek daily investment results that correspond to twice the daily performance of its corresponding benchmark, the Bloomberg Crude Oil Sub-Index. Between September 2017 and January 2018, the ETF ran from $14.50 to $26.71. That’s a fraction of what it would have cost an investor to buy XOM for at the same time.

Power Shares DB Oil Fund (DBO)
Price as of March 21, 2018: $11.07
Expense Ratio: 0.78%

The Power Shares DB Oil Fund seeks to track changes, whether positive or negative, in the level of the DBIQ Optimum Yield Crude Oil Index Excess Return™ (DBIQ Opt Yield Crude Oil Index ER) plus the interest income from the Fund's holdings of primarily US Treasury securities and money market income less the Fund's expenses. Again, an ETF like this gives us greater exposure to the energy market at less cost.

SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
Price as of March 21, 2018: $35.41
Expense Ratio: 0.35%

The ETF seeks to replicate as closely as possible before expenses the performance of an index derived from the oil and gas exploration and production segment of a U.S. total market composite index. 

United States Oil Fund (USO)
Price as of January 15, 2018: $13.14
Expense Ratio: 0.65%

When it comes to speculating on oil prices, one of the best ETFs to use is the USO.  The ETF tracks futures prices for West Texas Intermediate (WTI), sweet crude oil delivered to Cushing, Oklahoma. It also offers exposure to the front-month futures contract, or the futures contract nearest to expiration.

While a stock like XOM, CVX or COP can offer good exposure to rising oil prices, you can never go wrong with an ETF that offers much greater exposure and diversification at a far less cost than that of a single stock.

The beauty of an ETF is that I can also gain exposure to the bearish side of oil, too.

For example, if I believe that oil prices are stretched, and ready to pull back again, I can buy an ETF that runs higher, as oil pulls back. For example, the Pro Shares Ultra Short Bloomberg Crude Oil (SCO) trade has a history of running higher each time crude prices drop. For example, when crude fell from $50 to $46 in August 2017, the SCO ran from $36 to $42. 

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