Oil demand waxes and wanes, but it never completely disappears. That’s why this market is so appealing to investors who can stomach volatility and risk. How can you profit from oil using exchange traded funds (ETFs)?

Tony Daltorio for Investment U says that when it comes to coverage of oil prices, it appears that  the only time it really comes up is when the financial media mention either demand destruction in the United States or an inventory buildup of fuel in the United States.

This discounts the demand for oil on a worldwide stage, as China and other emerging markets  have quite an appetite for oil even as demand in the United States stays flat.

The media also has a tendency to ignore the largest part of the supply/demand equation when it comes to oil: The supply of oil is actually dropping three times faster than the demand for it is building. This is a major point that investors would be able to profit from, and make investment decisions based upon this.

How can one play oil with ETFs? There are several options, which range from ETFs that hold the stocks of companies involved in oil production, ETFs that hold a broad range of commodities and ETFs that hold oil futures contracts. Determine your risk tolerance, then take a position only when a fund goes above its 200-day moving average. Have a stop-loss in place to protect yourself on the downside.

ETFs for investors interested in oil:

• United States Oil (NYSEArca: USO): up 12.2% year-to-date

• PowerShares DB Oil (NYSEArca: DBO): up 32.3% year-to-date

• iShares Dow Jones US Oil & Gas Exploration (NYSEArca: IEO): up 33.8% year-to-date

For more stories about oil, visit our oil category.

Tags: Commodity ETFs, DBO, Energy, ETF 101, IEO, Oil, Sector ETFs, USO