How to invest in oil?

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mpi2008

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Hi Folks,

I would like to look at building up a position in crude oil given the low prices just now however I have never before invested/traded in this so looking for some advice from anyone who does this regularly?? Sorry if my questions seem very basic.

I have previously day-traded corn/soybeans/wheat in the Chicago futures markets before so I do have some experience of futures trading however I have no interest in day-trading any longer. I want to ideally gradually build-up a position in crude oil particularly if the price does go lower and possibly hold the position for a year or more. I just don't know how to satisfactorily do this.

I don't particularly want to try and time the market which is why trading futures in the oil market is putting me off..... as far out contract expiries will likely have larger spreads and then I may be forced to roll them over at further cost. I have also considered spreadbetting crude oil but again the spread-betting companies naturally want you to choose a nearby date by which the price needs to have made its move if its going to be profitable.

From having done a little reading, it would therefore seem like I should use ETFs specifically for crude oil (e.g. ETFS Brent Crude ETC) however I am worried about how closely these track actual spot crude oil prices i.e. I don't want crude oil prices to skyrocket at some point in the future only to find my investment has trickled a little higher. Came across this today: http://www.barchart.com/articles/etf/petroleum&rct

Any advice on this?

I realise I could alternately invest in oil companies but from what I've read and seen, I feel the correlation between oil company prices and spot crude oil prices is likely to be even further removed than in the case of ETFs.

Many thanks in advance for any advice or reassurance anyone might have.

Kind Regards
 
If you go the ETF route, you could invest in leveraged ETFs to get around 2x or 3x returns. While they may not always track the underlying exactly, I think they are usually pretty close, though I don't have much experience with commodity ETFs.
 
binarymatt said:
If you go the ETF route, you could invest in leveraged ETFs to get around 2x or 3x returns. While they may not always track the underlying exactly, I think they are usually pretty close, though I don't have much experience with commodity ETFs.
Click to expand...

Thanks for the reply Matt. I have seen them.....just found 'Boost WTI Oil 3x Leverage Daily ETP GBP' on AJ Bell which is down 82% in the past year however I'm confused by the interjection of the word 'daily' in the title which insinuates to me it is day-traded and trades closed at the end of each day. I'll have a look at a few others but it looks like it may be a bit of a rabbit warren and I'd need to find out exactly what each unit is worth.

Just found this interesting piece on leveraged crude oil ETFs :
http://www.spa-etf.com/leveraged-2x-and-3x-crude-oil-etfs/
 
Last edited:
It is very risky to go looking for a bottom in oil at the momment or to go shor, because you may get caught in a short squeeze.
 
fxstrategist said:
It is very risky to go looking for a bottom in oil at the momment or to go shor, because you may get caught in a short squeeze.
Click to expand...

epic_research said:
Really now this time so risky .
Click to expand...
It's clear from the OP's comments that he's not just doing this on a winner takes all - shoot from the hip pure gamble - in some misguided attempt to catch a falling knife. He's given it some thought. He states that he's looking to build a position over the medium term, that he isn't trying to time the bottom and, indeed, isn't worried if the price continues to drop. All in all, it makes sense to me!

Trading is inherently risky and, arguably, the greater the risk the greater the reward. What matters is how, as traders, we evaluate and manage that risk. On the face of it, it sounds to me as if the OP has a clear idea about how to do this.
Tim.
 
mpi2008 said:
Hi Folks,

I would like to look at building up a position in crude oil given the low prices just now however I have never before invested/traded in this so looking for some advice from anyone who does this regularly?? Sorry if my questions seem very basic.

I have previously day-traded corn/soybeans/wheat in the Chicago futures markets before so I do have some experience of futures trading however I have no interest in day-trading any longer. I want to ideally gradually build-up a position in crude oil particularly if the price does go lower and possibly hold the position for a year or more. I just don't know how to satisfactorily do this.

I don't particularly want to try and time the market which is why trading futures in the oil market is putting me off..... as far out contract expiries will likely have larger spreads and then I may be forced to roll them over at further cost. I have also considered spreadbetting crude oil but again the spread-betting companies naturally want you to choose a nearby date by which the price needs to have made its move if its going to be profitable.

From having done a little reading, it would therefore seem like I should use ETFs specifically for crude oil (e.g. ETFS Brent Crude ETC) however I am worried about how closely these track actual spot crude oil prices i.e. I don't want crude oil prices to skyrocket at some point in the future only to find my investment has trickled a little higher. Came across this today: http://www.barchart.com/articles/etf/petroleum&rct

Any advice on this?

I realise I could alternately invest in oil companies but from what I've read and seen, I feel the correlation between oil company prices and spot crude oil prices is likely to be even further removed than in the case of ETFs.

Many thanks in advance for any advice or reassurance anyone might have.

Kind Regards
Click to expand...

Spread-betting brokers usually offer CFDs with expiration dates.

And as I'm aware of, ETFs invest in companies on the related field. So ETFs would be a good option if you want to invest in Oil for the long run.
 
mpi2008 said:
Thanks for the reply Matt. I have seen them.....just found 'Boost WTI Oil 3x Leverage Daily ETP GBP' on AJ Bell which is down 82% in the past year however I'm confused by the interjection of the word 'daily' in the title which insinuates to me it is day-traded and trades closed at the end of each day. I'll have a look at a few others but it looks like it may be a bit of a rabbit warren and I'd need to find out exactly what each unit is worth.

Just found this interesting piece on leveraged crude oil ETFs :
http://www.spa-etf.com/leveraged-2x-and-3x-crude-oil-etfs/
Click to expand...

Here is my own rather crude ETF research (lol couldn't resist);

Brent Crude
DTO PowerShares DB Crude Oil Double Short ETN 2x
UCO ProShares Ultra DJ-UBS Crude Oil 2x
LBRT ETFS Daily Leveraged Brent Crude 2x
BRNT ETFS Commodity Securities Brent Crude 1x
SBRT ETFS Daily Short Brent Crude Brent Crude -1x
SCO ProShares UltraShort DJ-UBS Crude Oil ETF -2x


West Texas Intermediate (WTI Light Crude)
UWTI VelocityShares 3X Long Crude ETN (UWTI) 3x
LOIL ETFS Commodity Securities Daily Leveraged WTI Crude Oil (LOIL) 2x
CRUD ETFS WTI Crude Oil 1x
USO United States Oil Fund 1x
SOIL ETFS Commodity Securities Daily Short WTI Crude Oil (SOIL) -1x
DWTI VelocityShares 3X Inverse Crude ETN -3x

Multipliers at the end designate multiplier effect (i.e. leveraged) and the direction.

And to explain the "Daily" reflected in the ETF name, in the case of SBRT;
A daily short exposure means that the product is designed to reflect minus one times the daily percentage change in the Index level. For example, if the Index was to rise in value by 5% on a particular day, the product is designed to decrease in value by 5% on that day (minus fees and expenses).
Click to expand...

I'm very happy with the performance of SCO, I would leave off going long until there is some stabilisation. :)

http://www.proshares.com/funds/sco.html
 
Steakeater said:
What about just going long on a March WTi contract through a spread betting platform such as IG Index?
Click to expand...

Yep, Steak, you are right, the difference in trading and investing. Bigger gains in trading, but greater risk, that's always our dilemma.
 
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