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Oil is an essential proponent for global economies. Oil is a commodity linked close to supply and demand and the demand will always be around. Emerging markets are demanding more of it, and we're running out of it, causing the prices to increase.
Crude oil is still the main source of energy used to create gasoline that fuels the majority of cars in the U.S. According to a report released by the International Energy Agency (IEA), global demand for oil is expected to grow significantly by 2012, especially in emerging markets. Oil is internationally-produced, and America's dependency on foreign resources tends to keep oil prices high.
The value of Oil ETF is that they give exposure to a broad basket of commodities, at a low cost. Before selecting oil ETFs, research its makeup as futures contracts are different than your typical investments. Ensure it fits with your portfolio and investment strategy.
The following are few Oil ETFs:
- United States Oil Fund (USO): The investment objective of USOF is for changes in percentage terms of the units' net asset value to reflect the changes in percentage terms of the spot price of West Texas Intermediate ("WTI") light, sweet crude oil delivered to Cushing, Oklahoma ("WTI light, sweet crude oil"), less USOF's expenses.
- Goldman Sachs Crude Oil Total Return ETN (OIL): The iPath Goldman Sachs Crude Oil Total Return Index ETN is a subindex of the Goldman Sachs Commodity Index. The Goldman Sachs Crude Oil Total Return Index reflects the returns that are potentially available through an unleveraged investment in the West Texas Intermediate (WTI) crude oil futures contract plus the Treasury Bill rate of interest that could be earned on funds committed to the trading of the underlying contracts.
- Oil Services HOLDRS ETF (OIH): The Oil Service HOLDRS Trust issues depositary receipts called Oil Service HOLDRS, representing an undivided beneficial ownership in the common stock of a group of specified companies that, among other things, provide drilling, well-site management, and related products and services for the oil service industry.
- iShares Dow Jones U.S. Oil Equipment & Services Index Fund (IEZ): The iShares Dow Jones U.S. Oil Equipment & Services Index Fund seeks to provide investment results generally equivalent to the Dow Jones U.S. Select Oil Equipment & Services Index.
- Powershares Dynamic Oil & Gas Services Portfolio ETF (PXJ): The PowerShares Oil & Gas Services Portfolio Fund seeks to replicate the Oil & Gas Services Intellidex. The Intellidex thoroughly evaluates companies based on a variety of investment merit criteria, including fundamental growth, stock valuation, investment timeliness and risk factors. Securities shown to possess the greatest capital appreciation potential are selected by the Index and incorporated by the portfolio manager.
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