However, when tensions arose between Israel and Iran — a major producer of oil — investors began fearing supply issues. For a brief moment, USO’s performance turned positive, but less than a week later, oil ETFs were slumping again, as shown below. Our partners cannot pay us to guarantee favorable reviews of their products or services. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation. Leveraged oil ETFs are designed to multiply the performance of an underlying index.
Oil ETF with the Best 1-Year Return: United States Brent Oil Fund LP (BNO)
Before investing, your individual circumstances should be considered, and you may need to seek independent financial advice. If you are looking to potentially save on management fees, make sure to also consider some of the best energy stocks in Canada. Historically, significant players in the Canadian oil sector include Suncor Energy, Canadian Natural Resources Limited, and Cenovus Energy.
How to Invest in Oil ETFs
ZEO is also rated as carrying a high risk, similar to most oil and gas stock funds or investments. Next on the list is one of the most well-known Canadian energy sector ETFs. XEG offered by Blackrock’s iShares also tracks Canadian energy companies involved in various stages of the energy delivery cycle.
For example, if the price of crude oil falls by 2% in a day, an inverse oil ETF would go up by 2%. An inverse oil ETF is a fund that is short the price of oil, meaning it is betting on the price of oil to fall. When choosing an oil ETF or ETC one should consider several other factors in addition to the methodology of the underlying index and performance of an ETF.
In general, equities within the oil and gas sector are not recommended for investors with a low-risk tolerance. Finally, we have leveraged oil ETFs, which track the price of crude oil or a specific oil sector, and has a certain performance multiplier. An ETF can make it easier to invest in the oil sector, but because of the volatile nature of oil prices and the industry dynamics, you’ll still need to know what you want to invest in. Some sectors may perform well while others do poorly, and others may be somewhat resistant to volatility because of the steadier nature of their businesses. Finally, it’s worth noting that larger ETFs tend to charge lower expense ratios, because they can spread the costs of running the fund across more assets.
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FAQs on investing in oil ETFs
The oil producer’s target is to deliver dividend growth Best oil etf in the top 25% of companies in the S&P 500 in the future. Fueling that plan are the impact of accretive acquisitions (it bought Marathon Oil last year), its high-return investment strategy, and its meaningful share repurchase program. ConocoPhillips doesn’t have Chevron’s dividend growth track record.
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The top three holdings for IEO are ConocoPhillips; EOG Resources Inc. (EOG), an oil and gas exploration and production company; and Pioneer Natural Resources Co. (PXD), a hydrocarbon exploration company. An ETF tracking oil futures has a different role in the portfolio in most cases. As we mentioned before, investing in an ETF tracking oil futures is generally riskier and more volatile than a more generic energy sector ETF. Energy ETFs also usually have high exposure to the price of oil – they invest in stocks of companies that usually directly benefit from rising oil prices. These can include oil extraction companies or oil transportation companies.
- However, oil prices have a direct effect on these companies in terms of their bottom line, so wide swings in crude prices have a significant impact on these stocks.
- Oil & Gas Exploration & Production ETF (IEO)—the second-biggest oil ETF—has delivered 22% returns, according to YCharts data.
- This article contains general educational content only and does not take into account your personal financial situation.
- The United States Oil Fund tracks the price of West Texas Intermediate light crude oil through futures contracts.
- This ETF aims to track the daily price movements of light sweet crude delivered to Cushing, Oklahoma.
What’s the difference between WTI and Brent crude oil?
Examples are hypothetical, and we encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Our estimates are based on past market performance, and past performance is not a guarantee of future performance. The Alerian MLP ETF is a fund that allows investors to target energy infrastructure midstream master limited partnerships (MLPs). These companies make money by providing midstream services such as operating pipelines or liquefied natural gas (LNG) export facilities. The best-performing oil ETF over this period has been the ProShares Ultra Bloomberg Crude Oil ETF (UCO), a fund that seeks to double the return of crude oil over a given period. It’s risen almost 60% since late June, roughly double the rise in crude prices.
- This all changed with the shale oil revolution, which turned the US back into the world’s leading massive energy producer.
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- These funds track a commodity-related equity index, consisting of a basket of oil and gas-related stocks.
- This is a sector that tends to be less volatile than energy producers and also distributes generous dividends, relying on its quasi-monopoly and the high value of its transportation assets.
- Some of the fund’s top holdings include major domestic oil producers like ConocoPhillips, Marathon Petroleum Corporation and Phillips 66 — all of which have seen positive 1-year returns of over 7%.
- They offer a low-cost option to get exposure to the oil and gas sector.
Investors looking for exposure to the energy industry have several options to play the sector, so it’s important that they know what they’re doing and what returns and risks each ETF ultimately offers. For this reason, some investors stick to basic broadly diversified index funds, such as those based on the Standard & Poor’s 500 index, and leave the trading to the pros. It’s also important to know why you’re buying into energy companies. For example, you may buy an energy ETF to help offset the effect of rising oil prices on your other investments. Or do you expect the investment in an energy ETF to always make a return on your investment?
ZEO again invests in the broad energy sector in Canada like most other funds on our list, but equally weights each of the underlying stocks. This leads to a drastically different investment mix when compared to a market cap weighting. Oil ETFs that track the price of crude oil may be more likely to rise than fall in 2024. Middle East tensions and the war in Ukraine are not expected to resolve in the short term and OPEC’s supply cut may continue to support higher prices for oil through midyear. Lower supply tends to push oil prices higher, especially when demand remains strong.
Brent ETFs
Since these funds track oil prices, they increase in value when oil prices go up. ETFs (that’s exchange-traded funds, in case you’re new to this) give you a way to invest in the oil market without putting all your eggs in one basket. And because they’re traded like stocks, they’re easy to buy and sell on most platforms. Some oil ETFs, like USL, are designed to mitigate contango, making them potentially more suitable for longer-term investing.
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