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3 ETFs to Play a Rebound in Oil Prices

Whether you want to bet directly on oil or make a play on energy companies, ETFs are the way to go

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3 ETFs to Play a Rebound in Oil Prices

Oil prices are weakening again — during the past few months, WTI crude futures have fallen from $106 per barrel to about $94 per barrel, reaching seven-month lows. Brent, meanwhile, is sitting at 14-month lows.

oil stocks to buy barrel money 630 ISP 300x227 3 ETFs to Play a Rebound in Oil Prices
Source: ©iStock.com/Zelfit

The dip in oil has created that fun dichotomy of ecstatic consumers glad to have some relief at the pump, and sour investors unhappy to see their energy holdings take a beating.

But might now might be a good time to go against the grain.

While oil prices might be low at the moment, the commodity has proven resilient over the years. Investors would be wise to remember that the U.S. economy remains healthy, as does China’s, which should help keep some sort of floor on prices. Longer-term, emerging economies should provide another source of strong demand.

According to Exxon Mobil’s (XOM) own estimates, global demand for oil is expected to increase 30% by 2040 — making it very difficult to believe oil is heading into the cellar for any long amount of time.

True, oil prices aren’t low for no reason. Supplies are at lofty levels, and Europe continues to drag on demand. The lessening of geopolitical tensions in Ukraine and Iraq are also helping take pressure off of prices. But at this point, it seems like crude oil prices have accounted for all these factors.

So if you do fall into the bull camp and think a rebound in oil prices is on the horizon, there are several ways to make a buck. Three that I like in particular fall in the exchange-traded fund camp:

United States Oil Fund (USO) and DB Energy Fund (DBE)

When it comes to making money on the changes in oil prices, the most direct approach investors have are futures — complex financial contracts that allow investors to go long or short. However, these instruments aren’t easily accessed by most individual investors. Not to mention, individuals must deal with “margin calls” — in short, anyone who borrows from a broker to make a trade must keep a certain percentage amount of cash as a margin requirement, and if that position loses money, a “margin call” forces the investor to add more money to the account, or the broker can sell off equities to make up the difference.

However, if you invest in futures via ETFs, you limit this risk — you can only lose the amount you can invest. Oil ETFs still can be incredibly volatile, though, so they should only represent a minor part of your portfolio.

One of the most popular options here is the United States Oil Fund (USO), which tracks the daily price movements for West Texas Intermediate (WTI) light, sweet crude oil.

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Article printed from InvestorPlace Media, http://investorplace.com/2014/08/3-etfs-oil-prices/.

©2014 InvestorPlace Media, LLC

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