How to own oil–not refiners, not natural gas. Oil.

It’s hard to own oil. Most of the ETFs that present themselves as vehicles for owning oil do a poor job of it. They own futures, rather than physical oil. Most of the major oil companies are a mixture of oil, natural gas, and refining operations. For example, Exxon-Mobile now only gets 60% of its value from oil production.

Tickers of major companies with a high percentage of their value from oil production: PBR, CVX, SU, CNQ, OXY, PWE, IMO, CEO. All of these get around 75% or more of their current value from oil production. (The rest is from natural gas or refining.) Source: http://www.mcdep.com/

The four major ETFs for oil invest in futures contracts: USO, OIL, DBO, and USL. The first two have underperformed the WTI spot price index horribly, while the latter two have underperformed slightly. DBO has a longer track record than USL. You can compare the performance of stocks and ETFs to the price of West Texas oil at Bloomberg:
http://www.bloomberg.com/apps/quote?ticker=USCRWTIC:IND

BNO is an ETF that tracks Brent oil–most of the oil sold in Europe rather then the US.

Why care more about oil? It is unique. Natural gas, coal, solar, hydro, wind, nuclear are ways to contribute energy to infrastructure. Mostly, they go into the electric grid, or sometimes directly to industry use. They compete with each other, and so each is less unique. Oil has little competition. There are no hybrid Boeing 747’s. The majority of the planet living on little income is not considering a Prius Chevrolet Volt for its next purchase. Biofuel is growing, but small, and potentially limited because it competes with food production. Oil is more needed, and thus more potentially profitable.

Leave a Reply

You must be logged in to post a comment.