There are material risks investing in oil ETFs that investors need to know before buying them.
With the demand coming back, oil prices are all set to rise higher. For the first time in two years, Brent crude has crossed $72 per barrel and is currently trading around $71.11. After the outbreak of Covid-19, the oil prices went to as low as $24 in April 2020 with the expectation of slack demand for the commodity in the economy.
However, as global economies open up in mid 2021, the oil prices have been firming up in expectation of demand coming back in the economy. Over the last 12-months, the price is up by nearly 75 per cent while year-to-date, the price is up by about 35 per cent.
If you as an investor wish to allocate a portion of your funds in oil commodities, a better way is to invest in oil ETFs available in the US stock market. Oil ETFs have become a popular investment option that gives access to the oil market.
According to ETF.com, there are nearly 11 oil ETFs traded on the U.S. markets, with total assets under management of about $6.29B. The average expense ratio is 0.77%.
Interestingly, Oil ETFs can be Commodities based and also equity-based funds. Here, we look at crude oil ETFs that track the price changes of crude oil, allowing investors to gain exposure to this market without the need for a futures account.
Crude Oil ETFs traded in the USA
United States Oil Fund LP (USO): 43.20%
ProShares Ultra Bloomberg Crude Oil : 95.67%
Invesco DB Oil Fund : 45.79%
United States 12 Month Oil Fund LP : 41.83%
ProShares K-1 Free Crude Oil Strategy ETF : 43.26%
(Year to-date returns)
The largest Oil ETF is the United States Oil Fund LP (USO) with nearly $3.20B in assets. The USO is an exchange-traded security whose shares may be purchased and sold on the NYSE Arca. USO invests primarily in listed crude oil futures contracts and other oil-related contracts, and may invest in forwards and swap contracts. USO is currently trading at a price of around $47.27.
There are material risks investing in oil ETFs that investors need to know before buying them. An investment in USO can be adversely impacted by various factors including disruptions in the markets for crude oil and regulatory and other limitations imposed on USO’s positions in the oil markets and other oil-related investments, such as the events that occurred during 2020.
Disclaimer: The investing decision in these or any other stock/ETFs should be taken on your own after carefully evaluating the business and other fundamentals of the company or after consulting one’s financial advisor. It is not a recommendation to buy, hold or sell in any of the stocks. Financial Express Online does not bear any responsibility on investing decisions made by readers/investors.