Oil ETF Plays With Extra ‘Oomph’

November 02, 2009 at 11:00 am by Tom Lydon

pump_economy_money_234816_tn Oil and gas exchange traded funds (ETFs) are continuing their ascent despite a supply glut. Investors looking to add a little “oomph” to rising prices or hedge falling ones may want to consider leveraged and inverse oil ETFs.

Global economies are recovering, however, not at the fast rate commodity markets are indicating. What gives? Oil has become the inverse proxy to the U.S. dollar: as the dollar weakens, the price of oil moves higher. (Is oil in danger of becoming an investment bubble?) With the burgeoning debt piling up in the United States, the dollar looks to be under pressure to move lower for the foreseeable future, explains Steven Halpern for Blogging Stocks.

The futures market is supporting a trend that oil and gas stocks will move higher in the months ahead, especially since many expect the dollar to remain depressed. (What else is supporting oil’s upward price moves?)

Halpern explains that if energy commodities are moving higher in the current economy, then there’s little on the horizon that would do anything but put more upward pricing pressure on the industry.

Meanwhile, gas prices are inflating as oil surges, too. In the latter part of October, gas gained 14 cents a gallon. Prices now stand at a national average of $2.70. Analysts are attributing the jump to an increase in oil prices.

Will oil and gas continue to remain strong? There are ETFs to represent both sides, but be sure to understand how these ETFs work by reading our special report on leveraged and inverse ETFs. Leveraged and inverse ETFs aren’t meant for long-term use and they’re not suitable for every investor.

For more stories about oil and gas, visit our commodity category.