Crude Oil ETF – time to buy?

Categorized: ETF | No comments

Crude Oil ETF Trading: Not for the Timid

The year 2010 hasn’t been a great year for crude oil investors, whether in standard futures or crude oil ETF trading. Many things have contributed to this suppression of the cost, including oversupply, poor economies around the globe and therefore less demand from consumers looking to cut back, and even things like the massive BP oil spill in the Gulf of Mexico.

But when costs are down, and the cost of a barrel of oil is relatively low compared to a few years ago, that can be the best time to invest in crude oil ETFs. ETFs are traded like stocks but work like mutual funds. You’re not investing in one company, but rather spreading your investment over an industry and betting on the future cost of the commodity. If it’s lower than your purchase price, you lose money. If the value goes up, you profit.

Oil is typically a high-priced item, with the cost of a barrel of oil having surged to well over $100 several times in the last few years. But it’s also dropped to under $40 a barrel during the same period.

Should You Buy Crude Oil ETF Shares?

In early 2010, investors aren’t happy with crude oil futures trading. With all the signs pointing to a slow US recovery, and a slow global recovery from financial recession, the value of crude might not increase for some time to come. As of August, 2010, a barrel of oil was just over $72. It’s believed that it will increase over the next several months, as demand increases.

Thanks to the BP oil spill in the Gulf, new regulations are going into effect for drilling which will increase the cost or producing each barrel of oil. The moratorium on drilling means losses for companies who now have delays in production on rigs and partially finished rigs they’ve invested billions in. This adds to their cost, a cost that always gets passed on to consumers, so the cost and value could increase. But there’s also the potential that it won’t and that it could even drop. It could also cause slow economic growth, less demand, and a drop in crude oil ETF values.

Crude Oil ETF Risk is Part of the Investment

Some experts believe that the higher cost and the higher rate of insurance premiums that oil companies will have to pay, all in the wake of the BP spill, will raise the price of oil to over $90 per barrel by 2011. That would be good news for those who’ve invested in crude oil ETFs. But just like trading on any futures, no one will know for sure whether they’re making a good investment until that day gets here.


Tagged with: , , , , , , ,

No comments yet.