With oil around $40 a barrel, many analysts are telling investors to buy oil and natural gas related investments. Knowing how you can invest in oil should be a part of your game plan whether it’s time to buy natural gas and oil or not. Through the last year, oil has been at $150 a barrel before falling with the market but when the market bottoms, will oil rally too? If so, will you have exposure?
Investing In Oil and Natural Gas
Yes, you can purchase oil through ETFs (Exchange Traded Funds), rather than futures or options on futures. Futures are highly leverage products and are not right for all investors; this allowed many companies to create ETFs that invest in oil as a product rather than investing in an oil company stock. The United States Oil Fund (USO) is ETF that tracks the price of oil. When the price of oil goes up the USO goes up, and visa versa. If you think oil is going up and you just want some exposure to oil, grab the USO and save some time looking through individual stocks. Natural Gas is also another investment that, before ETFs, was not available unless using futures. Now investors can invest in United States Natural Gas (UNG), an ETF that tracks the price of natural gas.
There are also ETNs (Exchange Traded Notes) from iPath such as iPath Oil ETN (OIL) for tracking oil and iPath Natural Gas (GAZ) for natural gas but they lack volume of USO and UNG. With that said, I would stick to USO and UNG.
Investing In Oil Related Companies
Don’t want to invest in oil and natural as the product but rather a service? The following ETFs are companies that are in the oil and gas industry. The SPDR S&P Oil and Gas Equipment and Services (XES) ETF or SPDR S&P Oil and Gas Exploration (XOP) which tracks oil equipment/services providers and oil exploration, respectively.
What To Leverage Your Oil Investments?
What to double your returns? There are ETFs that are double the performance of oil. Think oil is going up and want to jump in with leverage? Try the PowerShares Crude Oil Double Long ETN (DXO) which aims to double the performance of crude oil for the long side. If you think oil will go down try the PowerShares Crude Oil Double Short ETN (DTO.) If you are looking to leverage your investments for oil companies, look at the Ultra Oil & Gas (DIG) and Ultra Short Oil & Gas (DUG.)
These products are leverage and aim to double your exposure but at the same time, they double your risk.
Learn more about investing with ETFs (Exchange Traded Funds) using leverage.
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