Crude Oil ETFs Thriving On The Chaos

Michael Teague  |

Last week, the price of oil climbed over $100 for the first time in over a year as investors were ostensibly terrified by the possibility that events in Egypt could spiral out of control in a way that would disrupt shipping through the Suez Canal, which has been under the ancient North African country’s control since it was nationalized in 1956.

But socio-political unrest on a massive scale was not the only cause for concern, as last week saw the release of a report from the American Petroleum Institute indicating that crude inventories dropped by nine million barrels.  The shortfall can in part be explained, according to the U.S. Energy Information Administration (EIA), by technical difficulties at Midwestern refineries. It also has to do with the character of America’s current and much heralded energy revolution that should make the US the world’s top exporter of oil and gas by the end of the decade.

This is because of the increasingly central role played by natural gas that has been found in enormous reserves in shale formations throughout the country. The Bakken field in North Dakota and the Eagle Ford field in Texas, for example, have plentiful amounts of natural gas, which is likely to keep flowing for some time. Shale oil, by contrast, has not been as lucky, primarily because there is simply not as much of it to be had.

Thus, while oil closed on Tuesday up nearly a percent to $104.49, Americans have already been seeing prices at the pump rise over the past week, and more of this is to be expected as demand is set to increase over the remainder of the year.

While markets anxiously await crude supply data that is expected out on Wednesday, as well as what Fed Chairman Ben Bernanke will have to say about the economy as a whole after the release of June’s FOMC minutes, a good number of Exchange Traded Funds tied to crude oil have done well in present climate:

VelocityShares 3x Long Crude ETN (UWTI) – The fund consists of WTI crude oil futures contracts, and seeks to replicate, net of expenses, three times the daily performance of the S&P GSCI Crude Oil IndexER. The fund is up 25 percent year-to-date, and 17 percent over the past week to $36.

ProShares Ultra DJ-UBS Crude Oil (UCO) – The fund consists of futures contracts on crude oil, and corresponds to twice the daily performance of the Dow Jones UBS Crude Oil Sub-IndexSM. UCO is up over 18 percent year-to-date, and 12 percent over the past week to $34.67.

iPath S&P GSCI Crude Oil Total Return Index ETN (OIL) – Derived from WTI crude oil futures contracts, the fund seeks to track the performance of the Goldman Sachs Crude Oil Return index and reflects potential returns through unleveraged investment in the futures contacts comprising the index, along with the Treasury bill rate of interest that could be earned on funds committed to the trading of the underlying contracts. OIL is up over 11 percent year-to-date, and 6.5 percent over the past week to $24.21.

United States Oil (USO) – The fund tracks the performance, minus expenses, of the spot price of WTI light, sweet crude oil, by investing in futures contracts for WTI light, sweet crude oil, other types of crude oil, heating oil, gasoline, natural gas and other petroleum based-fuels. It also invests in cash-settled options on oil futures contracts, forward contracts for oil, and over-the-counter transactions that are based on the price of oil. USO is up 10 percent year-to-date, and 6 percent over the past week to $36.77

iPath Pure Beta Crude Oil ETN (OLEM) – The fund tracks, net of expenses, the Barclays Capital WTI Crude Oil Pure Beta Total Return Index. OLEM is up nearly 7 percent year-to-date, and almost 6 percent over the past week, to $41.07.

United States 12 Month Oil (USL) – The fund seeks to track changes in the percentage terms of the price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the changes in the average of the prices of 12 futures contracts on crude oil traded on the New York Mercantile Exchange. USO is up 6 percent year-to-date, and over 4 percent for the past week, to $42.07.

PowerShares DB Oil (DBO) – The fund tracks the price and yield performance, before fees and expenses, of the Deutsche Bank Liquid Commodity Index - Optimum Yield Oil Excess Return, a rules-based index consisting of futures contracts on WTI light sweet crude oil. DBO is up 3.75 percent year-to-date, and 3 percent over the past week, to $26.91.

PowerShares DB Crude Oil Long ETN (OLO) – The index tracks the price and yield performance, before fees and expenses, of the Deutsche Bank Liquid Commodity index - Optimum Yield Oil Excess Return, and is designed to reflect the performance of certain crude oil futures contracts plus the returns from investing in 3 month United States Treasury Bills. OLO is up 3.7 percent year-to-date, and 2.75 percent over the past week to $13.19.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:

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