The Traders' Guide to Oil and Energy
03/04/2011 7:00 am EST
Oil and related assets are taking center stage amid rising prices and conflict in the Middle East. Here are several ETFs that track the assets and are worthy of consideration now.
By Josh Golebieski
Oil is the talk on Wall Street these days. Last week, light sweet crude broke out to a new multi-year high. The commodity is already up 3.3% for the week, and an end-of-day surge recently sent prices above $100 a barrel.
Keep an eye on oil, folks. This recent breakout should definitely put the asset on your watch list.
So, how can we allocate capital in the oil market? I'll discuss a couple of options, including light sweet crude, gasoline, and heating oil plays.
Light Sweet Crude
United States Oil Fund (USO) tracks the movements of light sweet crude oil delivered to Cushing, Oklahoma. The fund has almost $2 billion in assets and invests mainly in listed crude oil futures contracts and other oil-related futures, forwards, and swaps contracts. More information about the fund can be found here.
iPath S&P GSCI Crude Oil Total Return Index ETN (OIL) is structured as an ETN, and the product is essentially a senior debt security issued by Barclays Bank. The index reflects returns that are un-leveraged investments in the light sweet crude futures contracts, plus the Treasury Bill rate of interest. More information on the fund can be found here.
United States Gasoline Fund (UGA) invests primarily in gasoline futures contracts and short-term US government debt. The fund is specifically designed to track the percentage movements of the price of gasoline delivered to New York harbor. More information on the fund can be found here.
NEXT: ETFs for Trading Heating Oil and Diversified Energy|pagebreak|
United States Heating Oil Fund (UHN) is designed to track, in percentage terms, the movements of heating oil prices. Heating oil accounts for about 25% of the yield in a barrel of crude, the second largest after gasoline. Heating oil is the primary source of fuel in places where natural gas is not readily available. More information on the fund can be found here.
ETFS Leveraged Heating Oil (London: LHEA) This ETF was created to reflect 200% of the daily percentage change in the UBS Heating Oil Sub-Index. The fund is allocated 100% in heating oil. More information on the fund can be found here.
PowerShares DB Energy Fund (DBE) tracks the performance of an index that consists of future contracts in light sweet crude, heating oil, brent crude oil, gasoline, and natural gas. More information on the fund can be found here.
iPath Dow Jones-UBS Energy Total Return ETN (JJE), another ETN, tracks the performance of an index that consists of futures contracts in four energy commodities: crude oil, heating oil, natural gas, and unleaded gasoline. Investors are able to trade at market price or receive a cash payment at the scheduled maturity based on the performance of the index. More information on the fund can be found here.
ProShares Ultra Oil & Gas (DIG) seeks a return of 200% of the changes in the Dow Jones US Oil & Gas Index. The fund is a way to magnify short-term exposure and should only be used as a temporary hedge. The fund’s top holdings include ExxonMobil (XOM) and Chevron (CVX). More information on the fund can be found here.
By Josh Golebieski of PortfolioTilt.com