Oil production in America is booming, especially after the
discovery of shale oil in regions of North Dakota and Texas. The
development of these resources is now beginning to have a huge
impact on the global hydrocarbon markets, as evidenced by a
report from the Energy Information Association (EIA) which states
that, last month, shale oil production had reached 7.4 million
barrels per day.
Further, an estimate by the International Energy Agency (IEA)
projects that the world's largest economy will achieve shale oil
production of 9 million barrels a day by 2018. In fact, some
believe that the country will surpass Saudi Arabia in oil
production by 2020, underscoring America's dramatic rise up the
oil charts (see
Crude Oil ETF Investing 101
Troubled times for investors
Oil has proven to be a haven for investors in the commodity
space; moreover oil prices are constantly tracked and monitored
as they are considered to be a key economic indicator. In spite
of good news from the American oil production industry, oil
prices have remained volatile and have worried investors
The political turmoil in Egypt and sluggish data from China
has been instrumental in keeping oil prices highly volatile and
range-bound. The increase in cost of oil extraction and a strong
dollar have restrained the commodity to break out of the low
$100/bbl. level. Added to this is a general commodity aversion
that has also kept a lid on prices for this natural resource
4 Ways to Short Oil with ETFs
Possible bets for investors
The recent resilience in the oil and gas sector has left
investors highly confused about how to play oil. Those who seek
to play in this challenging commodity may look at the available
options which could be solid picks if the commodity breaks out
United States Oil Fund (AMEX:
Launched in April 2006, USO seeks to reflect the performance,
less expenses, of the spot price of West Texas Intermediate
light, sweet crude oil and is a popular choice amongst investors.
The fund has a good asset base of $1.46 billion and charges 45
bps in fees.
Moreover, the ETF trades in a daily average volume of 4.7
millions shares a day. Over a one-year period, the fund has
yielded decent returns of 7.3% as of Jun 30. The fund is ideal
for investors who wish to play short in this space.
iPath S&P GSCI Crude Oil Total Return Index (AMEX:
Launched in Aug 2006, OIL is designed to provide exposure to
the S&P GSCI Crude Oil Total Return Index. The fund has an
asset base of $314.7 million, though the ETF is a bit expensive
as it charges 75bps in fees and expenses (see
3 ETFs for the Unconventional Oil Revolution
The ETF has a daily average trading volume of 800,000 shares.
The fund has given returns of 8.13% as of Jun 30, for the
trailing one-year period.
United States Brent Oil Fund (AMEX:
Launched in June 2010, BNO is designed to track the movement
of Brent crude oil. The fund is not very popular, as reflected in
its asset base of $41.3 million, and trades in a low volume of
58,000 shares a day.
The ETF has given returns of 12.2% over a one-year period as
of June 30. The fund is illiquid denoted by its wide spread.
Is oil a gamble?
While oil futures are seen to be in a stage of normal
backwardation, the current market scenario has completely
changed. Analysts see the commodity in the contango stage in the
short run mainly due to rising costs associated with the
Analysts are also of the opinion that under normal
circumstances, future oil prices may trade well above $106/bbl.
Some may also suggest going short on November 2013 futures
contract and to go long on the December 2015 futures contract, at
least when looking at the curve (see
Crude Oil ETF Investing 101
Oil prices have been trading mostly in the range of $80-$100
over the past one year. Though the year started on a strong note
for the commodity, the latter half of the year is expected to see
more bullish trends.
Globally oil prices may be trending on the higher edge now,
but the outlook for oil in the near term isn't that great,
especially when prices remain highly volatile and oil production
ramping up. Seeing the current market sentiment, one may choose
to go short in this interesting space.
Still, the trend could be your friend in this corner of the
market, especailly if supply is reduced thanks to Egyptian woes
or other geopolitical factors. Plus, the curve is arguably
favoring some bulls for the time being, so a look to any of the
could be ideal for this important commodity.
Want the latest recommendations from Zacks Investment
Research? Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
US BRENT OIL FD (BNO): ETF Research Reports
IPATH-GS CRUDE (OIL): ETF Research Reports
US-OIL FUND LP (USO): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for
the Next 30 Days. Click to get this free report