Commodity ETFs a Riskier Bet Last Week Than XOP


Dec. 4 2020, Updated 10:43 a.m. ET

Different approaches to crude oil

As we saw in the previous part, WTI (West Texas Intermediate) oil futures gained 0.05% last week. While retail investors don’t have easy access to the futures market, they can benefit from access to safer, low-cost avenues to bet on WTI crude prices.

The first avenue is commodity  ETFs such as the United States Oil Fund (USO), an ETF that tracks prompt WTI crude oil futures. Shares of USO trade on the NYSE (New York Stock Exchange) like company stock. The fund lost 1.3% last week.

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The second avenue is ETFs such as the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). It holds many American energy companies that have exposure to oil prices due to their upstream oil production operations. Because of their indirect exposure to volatile oil prices, ETFs like XOP are a safer, more diversified option for more conservative investors. XOP lost  just ~0.78% last week.

As you can see in the above graph, USO underperformed WTI oil toward the latter part of the week. At the beginning of the week, both WTI and USO gave similar returns. USO also unperformed the XOP.

XOP, like USO, underperformed oil prices toward the end of last week. The above graph notes that XOP’s performance was higher than both oil prices in the initial part of the week and above USO for nearly the entire week.

XOP holds premier American gas producers like Chevron Corporation (CVX), ConocoPhillips (COP), and Anadarko Petroleum (APC). These companies make up ~4% of the ETF.

In the next part of this series, we’ll take a look at trends in the WTI-Brent spread.


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