Original Post on The Sun's Financial Diary
Oil ETFs: Time to Invest in Anticipation of a Rebound in Oil Price?
Last week, I talked about CGM Focus Fund (CGMFX) and how the fund was hammered after oil prices plunged. Currently traded around $37 a barrel, crude oil prices have lost more than $100 since last July. Even though the OPEC has pledged deep cut in oil production, demands for oil were hampered as global economies entered recession. Today, the Commerce Department reported the slimmest trade deficit in November since 2003 at $40.4 billion, thanks to falling demands for foreign goods include crude oil.
But will oil prices stay this low if the economy recovers later this year, as some economists have predicted? The answer is likely to be No. Some analysts said oil could be traded $60 a barrel on average this year, according to Bloomberg. If that’s indeed the case, now may be a good time to position your investment (if you are investing oil at all) for the upward swing. For small investors, the easiest way to invest in oil and oil related services is using exchanged-traded funds (ETFs) because anybody can buy and sell ETFs from any broker, with no or a small initial deposit required to open an account at places like TradeKing or Zecco. As for what to invest, check out these oil and oil service ETFs:
- ProShares UltraShort Oil & Gas (DUG)
- Oil Services HOLDRs (OIH)
- United States Oil (USO)
- PowerShares Dynamic Oil & Gas Services (PXJ)
- PowerShares DB Oil (DBO)
- iShares Dow Jones US Oil & Gas Ex Index (IEO)
- iShares Dow Jones US Oil Equipment Index (IEZ)
- SPDR S&P Oil & Gas Equipment & Services (XES)
- SPDR S&P Oil & Gas Exploration & Prod (XOP)
Morningstar.com has listed more oil ETFs than what I am showing above. I left out those with very small trading volumes. As it happened last year to some Claymore ETFs, if nobody trades an ETF, it won’t last, no matter how good the concept is. So when you choose an ETF, make sure you select the ones with trading volumes.
