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Upstream Funds a Better Trade than US Crude Oil Futures Last Week

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Different approaches to crude oil

As we saw in the previous part of our series, WTI (West Texas Intermediate) crude oil futures lost ~2% last week. While retail investors don’t have easy access to the futures market, they can benefit from access to other safer, low-cost avenues to bet on WTI crude oil prices.

The first way is via energy-commodity ETFs such as the United States Oil Fund ETF (USO)—an ETF that tracks prompt WTI crude oil futures. Shares of USO trade on the NYSE like company stock. USO also lost almost 2% last week.

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The second way is an ETF 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 conservative investors. XOP was almost unchanged over last week.

Comparing performances

As we can see in the graph above, USO outperformed WTI crude oil futures last week. However, both gave almost similar returns toward the end of the week.

XOP was underperforming both WTI crude oil and USO at the beginning of last week, but started giving higher returns as the week progressed.

XOP holds premier American gas producers such as ConocoPhillips (COP), Chevron (CVX), Occidental Petroleum (OXY), and Apache (APA). All of these companies make up 5.2% of the ETF

In the next part, you can read about the WTI–Brent spread.

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