Monday, April 28, 2008

How to invest in crude oil (with ETF).

Crude oil is reaching $120 and discussions about what is target price are becoming topic number one. In this post let me provide you comparison of the most liquid ETF underlying crude oil futures or companies from oil industry.


As you can see on year-to-year basis the leader is Claymore MACROshares Oil Up Tradeable Shares (UCR). This is a bit complicated structure for price valuation. But basically it consists of shares of the MacroShares Oil Up Holding Trust. And income reflects trading and settlement with futures contracts.

The laggard is Proshares UltraShort Oil & Gas (DUG). But this ETF is underlying (going short) companies like Exxon Mobil (XOM), Chevron (CVX), Conoco Philips (COP) and others. This price drop is more likely triggered by good performance of oil companies rather than rising crude oil prices.

As a bonus you have here video tutor how to trade crude oil with technical analysis.

Comments

16 Responses to "How to invest in crude oil (with ETF)."

Kevin H said... April 28, 2008 at 8:06 PM

What is your reasoning behind the fall in price of DUG being a result of the general market's fall in price rather than the rise of crude oil prices?

Vlada, Czech Republic said... April 28, 2008 at 11:04 PM

Hi Kevin,
The reason is in holdings (Exxon M, Chevron..) included in DUG. DUG behaves in opposite direction as those holdings. And XOM, CVX, COP performed well on YOY basis.

Of course there is a dependancies with crude oil prices. But if DUG would underlay crude futures it'd be much more down.

Vlada, Czech Republic said... April 28, 2008 at 11:19 PM

I am sorry Kevin. It wasn't clear from statement in post. I've updated. Thanks for remark.

Steve said... May 19, 2008 at 3:48 AM

I own 2 gas stations and the high cost of gas is hurting me, how can I invest in oil to offset my loss in gas profits? and how much to invest? I used to make about 10k a month on gas, now it's about 3k, so I guess I need to make 7k a month on oil investment? Can you help?

Vlada, Czech Republic said... May 19, 2008 at 6:05 PM

Hello Steve,
Yes that's correct calculation. If you don't want to speculate on stock of futures markets try to find ETF which goes opposite with your real business. There are some energy ETF like XLE, IYE or VDE. These bring you offset for rise of energy prices.

steve said... May 20, 2008 at 3:04 PM

Vlada,
Hello, Would I want to offset the rise in energy prices? Im already doing that basically with my gas station. I need something that makes money if energy prices continue to climb.

Thanks
Steve

Vlada, Czech Republic said... May 20, 2008 at 7:30 PM

Go long with ETF underlying energy. If oil continues rise you make money with your investment. If oil falls you make money with your gas stations.

financialmarket said... May 24, 2008 at 12:06 PM

What do you think about other oil etfs?

(such as DBO, OIL, and USO as compared to UCR?)

Vlada, Czech Republic said... May 24, 2008 at 9:37 PM

USO and OIL are the most traded ETF underlying oil. As you can see on attached chart there is not difference at all in performance

John Kaizer said... June 4, 2008 at 12:02 PM

Dear Would be Partner,

With the current global increase in food prices due to the production of biological fuel(Ethanol), I have since come to the logical conclusion that any source of fuel(crude oil) at a reduced price, which will be imported will not only generate maximum profit but will also reduce the increase in food prices drastically.

It is based on this ideology that I have spent 6 long months in Africa trying to broker a deal and I have finally reached an agreement with Sudan, Brunei and Nigeria. This agreement will not only allow me to move 300,000 tons of crude oil from their ports monthly but also with a 20% discount if I can provide a source for rice import in these countries. There is also more, I am to pay 55% of the total sum being exported before shipping and the remaining 45% upon the ships docking at their destination.

For any business man such as myself, I would say "this is a deal of a life time", but still yet being a meticulous man, I know that that it is too big for me alone and that is why I am using this medium to seek for a partner, someone well versed in business issues such as import and export, who will run the home front, while I remain here to conclude this brokerage.

Investments and profits will be split 50-50.

I also have a scheduled plan of selling this deal to the government after one year of successful running, this is going to generate more profit and still secure the economy in terms of policy change.

All this being said, I would also like to inform my would be partner, that we have just one month to conclude this deal before it is handed to the Chinese or North Koreans who seem to be clamoring for the same deal.

I expect a serious and quick response. I can be reached at [kaizerj.enterprise@gmail.com] for further discussions.

John Kaizer

Scam Buster said... June 7, 2008 at 7:56 PM

Ahhh, I see the Nigerian Scammers have taken to posting on internet bulletin boards!

If anyone DOESN'T know, this is a scam. Dont waste your time with this guy.

Anonymous said... June 10, 2008 at 11:52 PM

If I read correctly, USO and OIL are indexed to West Texas Intermediate oil. Is there an index that is either tied to the NYMEX price of crude, or Brent North Sea Crude?

Cary said... July 2, 2008 at 9:39 PM

I am overleveraged in a great oil stock. It is a privately held company with a great track record of acquiring oil fields in California. The company is currently selling its shares at $4 with a plan to go public in 18-24 mos.. I need some liquidity and am willing to sell shares at $3.25 share. I can give you all the background data on the company you could ask for, and get you in touch with them directly. You would be getting a good price on high quality shares, and I would be getting the liquidity I need. If interested in more info, contact me cary@bluegroundinvestments.com

L Boyd said... December 19, 2008 at 5:15 PM

Steve - I'm very happy you brought this up. I hope that you will read this as I'm a little late to this party. I am in the middle of putting together a service that offers exactly what you're looking for by trading futures and options on RBOB contracts. Please contact me at llboyd [at] gmail . com if you're interested.

Anonymous said... March 19, 2009 at 6:50 AM

Vlada,
I would like to buy a crude oil ETF. I believe prices of crude oil will rise in the future and I would like to hold as long as it makes sense. Which ETF would you recommend? Thank you for your advice. MK

Anonymous said... April 3, 2009 at 6:17 PM

http://www.cnbc.com/id/30012650/?__source=yahoo|headline|quote|text|&par=yahoo