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High Oil Prices – Turning Lemons Into Lemonade
By Simon Maierhofer, Co-Founder
May 7, 2008
SAN DIEGO (ETFguide.com) - Oil futures blasted to a new record over $122 a barrel Tuesday. This comes on the heels of forecasts of higher prices and news hinting at supply shortages.
Prices at the pump edged lower, but appear poised to rise to new records of their own in coming weeks.
Some analysts feel that the reason behind the soaring oil prices is the dollar’s protracted decline. A falling dollar gives traders reason to buy oil. Investors often buy commodities such as oil as a hedge against inflation when the dollar falls, and a weaker greenback makes oil cheaper to investors overseas.
Goldman Sachs predicts that oil could rise to $150-$200 within the next 24 months. This is partially based on concerns about rising demand and falling oil production from
Russia and
Mexico combined with possible supply disruptions from
Nigeria and
Iraq.
Strong demand from
China,
India,
Russia,
Brazil and in the
Middle East is expected to grow by about 1.2 million barrels a day this year (total oil production is approx. 83 million barrels/day).
Fortunately, ETFs have made it easier to offset the higher cost at the pump, heating oil and gas with profits from oil ETFs.
The iPath GSCI Crude Oil ETN (Ticker: OIL), PowerShares DB Oil Fund (Ticker: DBO) and the United States Oil Fund (Ticker: USO) are all up right around 30% YTD.
Below is a list of ETFs that are directly linked to the price of oil.
Oil Commodity ETFs:
|
Name
|
Ticker
|
Exp.
|
Holdings
|
|
iPath GSCI Crude Oil
|
OIL
|
0.75%
|
100% Oil (sweet, light, crude)
|
|
PowerShares DB Oil Fund
|
DBO
|
0.50%
|
100% Oil (sweet, light, crude)
|
|
United States Oil Fund
|
USO
|
0.50%
|
100% Oil (sweet, light, crude)
|
|
Unites States 12-Month Oil Fund
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USL
|
0.60%
|
100% Oil (12 futures contracts)
|
|
United States Gasoline Fund
|
UGA
|
0.60%
|
100% Gasoline
|
|
United States Heating Oil Fund
|
UHN
|
0.60%
|
100% Heating Oil
|
|
ELEMENTS
Rogers Int. Energy
|
RJN
|
0.75%
|
47% Crude Oil, 31% Brent Oil, 7% Gasoline
|
|
PowerShares DB Energy Fund
|
DBE |
0.50%
|
22.5% each: Brent Crude, Light Crude, Heating Oil, Gasoline, 10% Natural Gas
|
|
iPath DJ-AIG Energy ETN
|
JJE
|
0.75%
|
41% Natural Gas, 37% Crude Oil, 11% Heating Oil, 10% Gasoline
|
Broad commodity ETFs with exposure to oil:
|
Name
|
Ticker
|
Exp.
|
Holdings
|
|
iPath S&P GSCI Total Return
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GSP
|
0.75%
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53% Oil, 7% Gas. 5% Heating Oil, 5% Gasoline
|
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iShares S&P GSCI Commodity
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GSG
|
0.75%
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53% Oil, 7% Gas. 5% Heating Oil, 5% Gasoline
|
|
PowerShares DB Commodity
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DBC
|
0.75%
|
Oil 35%, Heating Oil 20%
|
|
iPath DJ-AIG Commodity
|
DJP
|
0.75%
|
13% Oil, 12% Gas, 3% Heating Oil
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All the above mentioned ETFs are directly linked to the actual price of oil. Ultimately performance will depend on the allocated exposure to oil, natural gas, gasoline, heating oil (and other commodities with the broad commodity ETFs).
Another option to invest in the oil or energy sector is via sector ETFs. Those are ETFs that hold stocks of companies in the oil sector. Sector ETFs can offer exposure to the broad sector or a sub-sector such as oil exploration or oil equipment.
The next article will shine the spotlight on energy sector ETFs.
On the other hand, we will address how to cash in on falling oil prices. After all, with so much talk about oil breaking the $150-$200/barrel mark, the contrarian investor is thinking “go short”!
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