Oil is one of the most popular commodity trading instruments. There are several methods to profit from the difference in energy prices. We will consider one of them, namely, the oil ETFs. You will learn some facts about this trading instrument and find out what ETFs are considered most lucrative in 2021.

What is an oil ETF?

ETF stands for an exchange-traded fund. Therefore, oil ETFs are the funds traded on the oil exchange. They reflect the dynamics of oil prices or oil companies' shares in the commodity market. With ETFs, traders can deal with oil without buying or selling futures contracts.

Some ETFs are intended for accessing oil companies’ shares for investment purposes. At the same time, traders can use oil ETFs to speculate on price changes in some markets (Brent, for example), get access to a basket of commodities, or invest in a group of oil companies.

How to trade oil ETFs?

Experts note that investing in an oil ETF is a simpler way to generate profit from price fluctuations than trading futures or other crude oil derivatives. Besides, futures exchanges are unavailable for most retail investors.

Investing via oil ETFs is quite easy. For that, you need to open a trading account and choose the relevant asset in the list of available trading instruments. Technically, this process is the same as investing in other markets such as forex or metals.

To increase your potential profit, you need to find out what oil/energy ETF is considered the most lucrative.

What particular ETFs to invest in?

In 2020, experts picked out the following oil ETFs:

  1. WisdomTree Brent Crude Oil (BRNT).
  2. United States Oil Fund, LP (USO).
  3. ProShares Ultra Bloomberg Crude Oil (UCO).
  4. ProShares UltraShort Bloomberg Crude Oil (SCO).
  5. Energy Select Sector SPDR® Fund (XLE).

All these ETFs are of different types:

  1. WisdomTree Brent Crude Oil is an ETF for Brent crude oil. It allows investors to track changes in prices of the most popular oil benchmark.
  2. United States Oil Fund. This ETF reflects changes in the price of the American WTI benchmark (the Light Sweet crude oil).
  3. ProShares Ultra Bloomberg Crude Oil is a leveraged oil ETF that tracks the Bloomberg WTI Crude Oil Index. It enables traders to scale up profits by doubling daily fluctuations.
  4. ProShares UltraShort Bloomberg Crude Oil is an ETF aimed at getting profit from a decline in WTI prices.
  5. Energy Select Sector SPDR Fund is one of the oldest ETFs that was launched in 1998. It tracks the Energy Select Sector Index comprising large-cap American companies from the oil and gas industry and energy equipment.

The First Trust Natural Gas ETF (FCG) is recognized as one of the best energy ETFs at the moment. This fund combines several capitals and tracks the ISE-Revere natural gas index.

To sum up

We hope our article has helped you acknowledge that ETFs are an easy way to track oil price changes and invest in commodities or oil and gas companies. There is a great variety of ETFs, so every trader can choose the one that suits their needs best.