Playing With Oil Through ETFs

November 15th at 8:00am by Tom Lydon

61774390There are now five different exchange traded funds (ETFs) or products that track oil. Investors are plenty bullish about oil right now so is it a good time to start shorting it? Lawrence Carrel for TheStreet.com remarks that oil is almost at $100 a barrel and the price of crude has practically doubled this year without a pullback.

Fadel Gheit, the oil and gas researcher for Oppenheimer & Co. Funds, says oil prices have nothing to do with fundamentals. The fundamentals right now do not support $60 or $90. Demand hasn’t increased much and some insiders think oil’s rally is due to other reasons like a weak dollar, increased demand overseas and an unseasonal decline in inventory.

Traditionally, investors invested in oil through futures contracts. Shorting these is risky and expensive. ETFs are available and, in theory, they are easy to sell short as stocks, and you can borrow the shares in hopes of selling them and then buying them back cheaper.  This may not be true right now with the newer and thinly traded ETFs.  But tools in the ETF marketplace include:

  • MacroShares Oil Down Tradeable Trust (DCR)
  • MacroShares Oil Up Tradeable Trust (UCR)
  • US Oil Fund (USO)
  • PowerShares DB Oil Fund (DBO)
  • iPath S&P GSCI Crude Oil Total Return Index (OIL)

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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