3 Best Oil ETFs to Watch in 2024
Let’s take a look at some of the best oil exchange-traded funds (ETFs) to watch, how oil ETFs work and how to invest in them with competitive commissions.
Table of Contents
3 Best Oil ETFs to Watch
Here is a quick-fire list of some of the best oil exchanged-traded funds to watch this year. Of course, this list is not exhaustive but it does serve as a great starting point.
- United States Oil Fund LP ETF CFD - Best for WTI Crude Oil Exposure
- iShares STOXX Europe 600 Oil & Gas UCITS ETF - Best for European Oil & Gas Company Exposure
- iShares Oil & Gas Exploration & Production UCITS ETF - Best for US Oil & Gas Production Companies
More detailed analysis and research of these ETFs can be found further down this article.
Oil ETFs Research & Analysis
Many different investment management companies provide access to oil ETFs. There are Vanguard oil ETFs, iShares ETFs and many others. Let’s have a look at the top three to watch this year.
1. United States Oil Fund LP ETF (USO)
The United States Oil Fund CFD (USO) is an exchange-traded product whose shares trade on the New York Stock Exchange Arca. The aim of the oil crude ETF is for the daily changes in percentage terms to reflect the daily changes in percentage terms of the light sweet crude oil spot price.
The fund aims to be within plus/minus 10% of the average daily percentage change in the benchmark oil futures contract which is the near-month futures contract of West Texas Intermediate Oil (WTI). In some cases, the oil crude ETF could also be the subsequent month's futures contract.
You can trade the United States Oil Fund ETF using CFDs (contracts for difference). This means you can trade both long and short and potentially profit from rising and falling prices.
2. iShares STOXX Europe 600 Oil & Gas UCITS ETF
The iShares STOXX Europe 600 Oil & Gas UCITS ETF (EXH1) is a more diversified product that focuses on investments within the oil and gas industry. The aim of the fund is to track the benchmark index STOXX Europe 600 Oil & Gas which focuses on the largest stocks within the oil and gas industry in Europe.
As of March 2024, the fund’s biggest holdings included 30.28% in Royal Dutch Shell, 15.1% in BP PLC, 14.73% in Total SA, 7.31% in Statoil ASA, 6.85% in ENI Spa and holdings in other oil, and gas and renewable energy companies.
The surge higher in energy prices in 2023 helped lift the price of the ETF to the top of a long-term trading range dating back to 2009. This will now be a big test for the market. If the price can break through it is a conviction of buyers believing energy prices will be higher in the future and could start the beginning of a longer trend. However, oil is notoriously volatile so risk management is key.
3. iShares Oil & Gas Exploration & Production UCITS ETF
iShares by BlackRock is one of the world’s largest ETF providers. The iShares Oil & Gas Exploration & Production UCITS ETF (IOGP) is designed to track the performance of an index that is composed of the biggest global companies involved in the exploration of oil and gas production.
This fund provides investors with the opportunity to capitalise on the sector without trying to pick the best individual stock, thus providing a more diversified and broader exposure. The fund had 83 holdings in countries all over the world including the United States, Canada, Australia, Russia, Japan and elsewhere. Some of the fund’s top holdings included 10.17% in EOG Resources, 10.10% in Canadian Natural Resources Ltd, 10.04% in ConocoPhillips and many others.
If you want to get more in-depth information about oil ETFs, have a look at the video below where a professional trader discusses the recent bullish performance in oil and shines a light on different ETFs that could be of interest to traders.
How to Invest in Oil ETFs in 4 Steps
With Admirals, you can trade and invest in numerous oil stocks and oil exchange-traded funds from all around the world, with the following commissions:
- UK stocks and ETFs – 0.1% of trade value, 1 GBP minimum commission.
- US stocks and ETFs – From $0.02 per share, 1 USD minimum commission.
- France/Germany stocks and ETFs - 0.1% of trade value, 1 EUR minimum commission.
You can learn more about trading and investing commissions on the Admirals Contract Specification page. You can search for global stocks and ETFs from the MT5 web platform and invest in four steps:
- Open an account with Admirals.
- Click on Trade on one of your live or demo trading accounts to open the web platform.
- Search for your symbol at the top of the search window.
- Click Create New Order in the bottom window to open a trading ticket to input your trade size, stop loss and take profit level.
How Do Oil ETFs Work?
An oil ETF (exchange-traded fund) acts similarly to a mutual fund. The investment company that creates the ETF would simply buy oil-related securities to track a benchmark oil index.
The securities the fund management company invests in can vary from shares in an oil or gas-related company, or it could be buying oil directly or through derivatives such as futures and options.
Investors can then trade on the price of an oil ETF like any other stock as they are also listed on the stock exchange. This provides investors with the ability to diversify their portfolio into commodity and energy markets.
2 Different Types of Oil ETFs
When trading ETFs in oil it is important to know the different types there are.
This is especially important when it comes to risk management as some ETFs can amplify your returns and losses more than you may typically expect.
A few unique ETFs that are important to know about include:
1. Leveraged Oil ETFs
A leveraged oil ETF amplifies the price swings of the benchmark oil index it is following. There are a variety of different types of leveraged oil ETFs too. There is the ETFS 2x Daily Long WTI Crude Oil ETF and the ProShares UltraPro 3x Crude Oil ETF.
Let’s take the ETFS 2x Daily Long WTI Crude Oil ETF as an example. This instrument offers investors leveraged exposure to the total return of an investment in WTI (West Texas Intermediate) oil futures contracts. It does this by tracking the Bloomberg WTI Crude Oil Index.
As the fund is 2x leveraged, it means the fund is designed to move 200% of the daily percentage change of the Bloomberg WTI Crude Oil Index. So, if the index moved 5% in a day, then the leveraged fund would move 10%.
Of course, while this amplifies possible returns it also amplifies the losses as well so it may not be that suitable for beginner investors. As always, risk management is key to long-term, successful investing.
2. Inverse Oil ETFs
Inverse oil ETFs allow investors to potentially profit from falling oil prices. This is because inverse oil ETFs move in the opposite direction (the inverse) of the benchmark oil index it is following.
If oil prices were falling, then it is likely any benchmark oil index would also fall. In this instance, the inverse oil ETF would rise. Therefore, if an investor believed oil prices are likely to fall, they could buy an inverse oil ETF and potentially profit as oil prices fall.
Are Oil ETFs a Good Investment?
Deciding whether or not oil ETFs are a good investment in your investing portfolio ultimately depends on several factors including what the market is doing, your tolerance to risk and your overall knowledge and experience.
Oil prices are notoriously volatile as they are affected by a variety of different factors beyond just supply and demand. It is a politicised commodity and often finds itself at the mercy of geopolitical tensions. This volatility may not suit all types of investors as everyone has a different risk tolerance level.
Conclusion
Investing in the best oil ETFs provides loose exposure to the performance of oil and oil companies. Some funds focus on purchasing the stocks of oil companies while some invest in oil futures contracts. By investing in oil crude ETFs, investors can diversify their portfolios. It is important to note, that the oil market is extremely volatile. Therefore, proper risk management is essential.
Continue Reading:
- Best Commodity ETFs
- Best Energy ETFs
- Best S&P 500 ETF
- Best Vanguard ETFs
- What Are ETFs? ETFs Explained
- How to Trade ETFs with €1000
- The CFD Trading Guide
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