OIL ETF

Oil ETF’s are funds which track the cost of oil and oil futures, without directly investing in oil and it is linked to the price movement of oil for which there are oil index. Oil ETF ’s opens an opportunity to an individual investors to have investments in the oil sector ,the sector which all know is a very important part of world economy and have tremendous growth .The ETF’ s prices are directly linked with oil prices. In United States, the crude Oil ETF’s had a growth of 5.2% in November, 07 comparing with 4.5% in the current month, which seems attractive growth as from investor’s viewpoint

On a more economic point of view, sometimes higher oil prices have negative effects, which these days occur due to speculative investments in Oil ETF’s. Usually, speculations arises from the interpretation of new and future oil contracts, which investors and traders think as a sign of money to be dumped into the oil sector and with this, prompt new buying of Oil ETF ’s units starts and this process pushes the prices of the oil higher. Though, it certainly gives the short term gains to investors.

An investment in Oil ETF units has an edge over the stocks of the oil companies as we take up investment cases in oil companies first. If an investor invests in oil companies stocks and shares, the performance of the investments will depend on many factors ,like a company cannot produce same barrels of oil every time, hence effecting the production and revenue performance of the company, which usually reflects on the shares of that particular company. Profitability of the companies can get affected by reasons ,such as regional conflicts, politics or internal management problems of the companies .So , in this case the profitability of oil companies are not directly proportional to the increase oil prices. Where as, in Oil ETF’s case the ETF unit price moves relatively with the oil prices. If the oil prices rises than the unit price of an ETF will also rise by same amount. Thus, it makes it easier for individual investors. Investors don’t have to keep watch on both, the oil prices and the company specific issues.

The world oil production stands around 74 million gallons per day and the demand growth is around 2.5% yearly, which keep the world oil market on growth. Oil and gas as always, a bullish sector for investment point of view. Oil ETF ’s long term investment point of view is steady and stable growth in future, where as short term perspective remain volatile as we have seen in recent past but remains bullish.