Exchange-traded funds (ETFs) are baskets of assets such as commodities, shares, or bonds that are categorized according to their sector, region, or strategy. An ETF can be bought or sold during market trading hours in the same way that you would buy or sell a single stock.
ETFs have become popular because they are inherently diversified (depending on the particular ETF) and they allow amateur investors to gain exposure to assets like gold and oil that they might not otherwise be able to invest in.
In this guide, we look at the best oil ETFs to invest in this year.
Where Can I Trade Oil ETFs?
The best oil ETFs to buy will be available from online brokers. Determining the best broker involves considering their regulation status, customer service standards, fees, and other factors. To simplify your search, we have found some of the best brokers.
What Is an Oil ETF?
An oil ETF tracks the financial movements in the oil and gas industry, either by investing in petroleum companies or by buying oil futures contracts and then selling them before they expire. An oil ETF investor doesn’t have to worry about what happens under the covers; you just buy shares in the ETF and watch as it tracks the oil price upwards and (hopefully not) downwards.
Invest in Oil ETFs in 3 Steps
Open a Trading Account
Opening a brokerage account is easy. Click the “sign up” or “open account” button on the broker’s website and enter the required information; usually your name, phone number, email address, and the type of account you’d like to open. Most brokers will also ask you to confirm your identity, either electronically or by sending in some documentation.
Choose Oil ETFs
Once you’ve funded your account by bank transfer, debit card, or another method such as PayPal, you can decide which oil ETF(s) to buy from the list presented by the broker. Take inspiration from our list of oil ETFs, but also do your own research by clicking on each available ETF to see more information.
Place Your Trade
ETFs are traded like single stocks. Just specify how much you want to invest, either as a monetary amount or a number of shares or units, then press the “buy” button. If you’re placing a trade outside of market hours, use a limit order to ensure you don’t pay more than you want to pay. And consider applying a stop order to your trade that will limit your loss if the price falls in the future.
Best Oil ETFs to Buy Now
Here is our list of top ten oil ETFs to buy this year.
- ProShares Ultra Bloomberg Crude Oil (UCO)
- Invesco DB Oil Fund (DBO)
- United States Oil Fund (USO)
- ProShares K-1 Free Crude Oil Strategy (OILK)
- VanEck Vectors Oil Services (OIH)
- iShares U.S. Oil Equipment & Services (IEZ)
- Direxion Daily S&P Oil & Gas Exp. & Prod. (GUSH)
- ProShares Ultra Bloomberg Crude Oil (UCO)
- Invesco S&P SmallCap Energy (PSCE)
- WisdomTree Brent Crude Oil (BRNT)
1. ProShares Ultra Bloomberg Crude Oil (UCO)
Issued by ProShares, UCO was initiated in 2008. It tracks the Bloomberg Commodity Balanced WTI Crude Oil Index. At the time of writing, it has $985.84 million worth of assets under management and its expense ratio is 0.95%. The price of this ETF has risen steadily in the year to June 2021.
2. Invesco DB Oil Fund (DBO)
DBO has tracked an index of crude oil futures contracts since 2007. It has an average daily trading volume of $6.87 million and a total of five holdings at the time of writing. The value of this ETF almost doubled between April 2020 and May 2021.
3. United States Oil Fund (USO)
Since 2006, USO has tracked mostly short-term futures contracts but also the US dollar. It includes four commodities and its expense ratio is 0.79%. The value of this ETF fell far in the first months of 2020 but has risen steadily ever since.
4. ProShares K-1 Free Crude Oil Strategy (OILK)
OILK is exposed to oil futures contracts of three-month duration. Issued in 2016, it has an expense ratio of 0.68%. Just like USO, this ETF has risen steadily in 2021 after falling far in the first months of 2020.
5. VanEck Vectors Oil Services ETF (OIH)
Since 2001, OIH has tracked an index of 25 of the most important and biggest US oil service companies. The USA accounts for most of the holdings (94.85%) followed by Italy. The price of this ETF has been volatile but rising in the year to June 2020.
Expert Tip on Investing in Oil ETFs“ The oil price, and hence the value of oil ETFs, is driven by world news and economic events. So, you should keep abreast of the major events that are happening in the world. If you think that the worst of the coronavirus is behind us, you can look forward to the demand for oil increasing as economies continue to reopen. ”- Mauricio Carillo
Why Trade ETFs?
ETFs are popular because they are less risky than other assets such as individual stocks that could go bust. If you’re not confident enough to trade oil futures contracts, ETFs can provide the exposure to the oil market that you’re looking for.
Frequently Asked Questions
We have listed our top ten oil ETF picks in this guide and described five of them.
Oil ETFs could be a good investment if you think that oil demand will increase as economies continue to reopen after the coronavirus crisis.
Oil ETFs are a suitable investment for anyone who wants exposure to the oil price without having to trade oil futures contracts.
A share is a unit of stock in a company. An ETF is a basket of such shares that can be bought and sold as a single unit.
Oil ETFs are better for beginners than buying individual oil stocks or trading oil futures contracts.
According to reports, 19 ETFs that are traded in the US market have a total value of $9.91 billion of assets under management.