Oil ETFs: Two Ways to Get Your Fix
December 24th 2010 at 1:00pm by Tom Lydon
You’ve probably already noticed that the pump prices are getting a little more painful. It may not help your budget, but exchange traded funds (ETFs) are certainly in line to benefit.
Today oil prices are lingering around $91 per barrel, but where it goes next is a matter of debate. Oil is smack in the middle of a three-year trading range, says Matthew D. McCall for Index Universe. That means everyone has a prediction.
According to Brai Odion-Esene for Automated Trader, the the EIA presented updated projections for U.S. energy markets through 2035. Those projections estimate that the real price of crude oil will be $125-$200 per barrel by then.
One thing is fairly certain: the days of $40 oil a barrel seen in 2009 are long gone. The global economic recovery is in play, and greater demand for oil goes hand-in-hand with this growth. [CFTC Rules Already Baked Into ETFs.]
Two ETFs can help give exposure to oil. Both funds trade futures contracts – there’s no physically-backed oil ETF; can you imagine the storage space that would be required?
United States Oil Fund (NYSEArca: USO) is down year-to-date due to contango. There has been a flattening of the curve, and some suspect backwardation (the exact opposite of contango) could be right around the corner, which would benefit USO. [Gasoline ETF: Offset Higher Prices At the Pump.]
United States 12-Month Oil Fund (NYSEArca: USL) helps mitigate contango that could occur when rolling out of a contract into the next front-month contract. USL has slightly outperformed USO and is up 2% for the year.
Tisha Guerrero contributed to this article.
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.