Oil has been seeing rough trading over the past one month. The
choppiness is likely to continue in the coming weeks thanks largely
to the Iran nuclear deal that eased fears of the Middle East supply
disruption. The Middle East is one of the major oil producers and
accounts for one-third of the world's total oil output(read:
Oil ETFs in Focus Ahead of Iran Talks
Deal Eases Oil Supply Tensions
Iran and world powers entered into a preliminary six-month accord
in which Iran would curb its nuclear activities in exchange for
easy international sanctions on oil, auto parts, gold and precious
metals. This marks the first step toward resolving the decade-long
diplomatic tension over the nuclear dispute and spreading optimism
across the Middle East nations, leading to declining oil prices.
The deal also raises hopes for a more comprehensive agreement that
could allow Iran to restore oil production to pre-sanction levels.
If this happens, it would add one million barrels per day of oil to
world markets by next year and improve long-term oil supply
conditions. Consequently, this would further put pressure on the
global oil prices (read:
Play the U.S. Oil Boom with These Energy ETFs
Further, weak global demand due to slowing economic growth would
push oil prices down. The EIA projects global demand to fall to
91.39 million barrels per day in 2014 from the previous expectation
of 91.43 million barrels per day.
Mixed Market Reactions
Following the Iran deal in the weekend, Brent oil slid over $2 in
early trading on Monday while crude oil slipped 90 cents. Most of
this decline was recouped on Tuesday trading on the market opinion
that Iran would take some time to increase its production.
Even if the long-term deal is reached anytime soon, Iran could take
three to nine months to recover the one million barrels per day in
production lost since 2011. Further, with restricted sanctions on
oil and banking, oil price will not remain low for long (read:
3 Country ETFs to Buy on an Oil Surge
The mixed sentiment has put oil ETFs in focus for the coming weeks.
These ETFs might be easier plays for investors seeking to deal
directly in the futures market. Below, we have highlighted a few
popular oil ETFs that could be interesting plays in the coming
days, given the volatile trading in oil.
Brent Oil Fund (
This fund provides direct exposure to the spot price of Brent crude
oil on a daily basis through future contracts. It has amassed $30.6
million in its asset base and trades in moderate volume of roughly
56,000 shares a day.
The ETF charges 75 bps in annual fees and expenses. BNO gained
nearly 4% over the past 10 trading sessions and over 6.5% in the
Oil Fund (
This is the most popular and liquid ETF in the oil space with AUM
of over $1.3 billion and average daily volume of over 5.9 million
shares. The fund seeks to match the performance of the spot price
of light sweet crude oil West Texas Intermediate (WTI). The ETF has
0.45% in expense ratio.
The ETF lost about 3.34% in the past 10 days but is up 1.35% so far
this year (read:
A Comprehensive Guide to Oil & Gas ETFs
PowerShares DB Oil Fund (
This product provides exposure to crude oil through WTI futures
contracts and follows the DBIQ Optimum Yield Crude Oil Index Excess
Return. The fund sees solid average daily volume of more than
146,000 shares and AUM of $324.8 million. It charges annual fees of
79 bps from investors.
DBO lost 0.19% in the past 10 trading sessions while it is up
around 4% in the year-to-date period.
iPath S&P GSCI Crude Oil Index ETN (
This is an ETN option for oil investors and delivers returns
through an unleveraged investment in the WTI crude oil futures
contract. The product follows the S&P GSCI Crude Oil Total
Return Index, a subset of the S&P GSCI Commodity Index (see:
all the Energy ETFs here
The note has amassed $290.4 million in AUM so far and does volume
of roughly 532,000 shares a day. It charges 75 bps in fees per year
from investors. The ETN was down 3.75% in the trailing 10 days
while added 1.28% in the year-to-date period.
Based on sluggish global demand given slowing global growth and
increasing supplies on the back of modern technological
advancements and political stability in producing countries, crude
fundamentals appear bleak.
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
PWRSH-DB OIL FD (DBO): 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