Crude oil and natural gas are two forms of energy that exchange traded funds (ETFs) track. But what’s the difference between the two?
Natural gas is not a renewable energy source, but there’s lots of it, and it’s environmentally-friendly. Natural gas is also a popular energy supply source used in about half of all U.S. homes, says Gary Gordon for ETF Expert. Crude oil is still the main source of energy used to create gasoline that fuels the majority of cars in the U.S. According to a report released by the International Energy Agency (IEA) last month, global demand for oil is expected to grow significantly by 2012, especially in emerging markets. China, Southeast Asia and the Middle East are expected to guzzle the most gas, whereas Japan is expected to cut its oil usage and focus on ways to use natural gas instead.
Natural gas and crude oil have an inverse relationship that is likely to continue. Oil is internationally-produced, and our country’s dependency on foreign resources tends to keep oil prices high. In contrast, natural gas is locally produced, which means demand and prices tend to be lower, Gordon says. For investors interested in oil and natural ETFs, below are a few available:
- First Trust ISE-Revere Natural Gas (FCG)
- United States Natural Gas (UNG)
- iPath S&P GSCI Crude Oil Total Return Index ETN (OIL)
- Claymore MACROshares Oil Up Tradeable Trust (UCR)
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. 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.