Energy Commodities: Where Can Investors Look?

September 30, 2016 3oliver

Energy ETFs: How Can Investors Place Their Bets? PART 2 OF 4

By Robert Scott | Sep 30, 2016 7:38 am EDT

USO versus UNG

From September 22–29, 2016, the United States Oil ETF (USO) outperformed the United States Natural Gas ETF (UNG). USO rose ~3.2% and UNG fell ~2.7%.

UNG ended September 29, 2016, with a fall of ~1.2% due to the EIA’s (U.S. Energy Information Administration) announcement that natural gas (UNG) (FCG) inventories had risen by 49 Bcf (billion cubic feet). A Wall Street Journal survey estimated a rise of 57 Bcf. The rise in the natural gas inventory was below the market’s expectation. However, due to forecasts for falling temperatures, traders weren’t very bullish on natural gas prices.

We already looked at the factors that led to the 3.3% rise in US crude oil in Part 1. USO tracks US crude oil.

Analyzing USO’s performance

USO rose ~36% from February 11–September 29, 2016. During that period, US crude oil active futures rose 82.5%. On February 11, 2016, crude oil active futures hit their 12-year lows.

From June 20, 2014, to September 29, 2016, USO fell ~72.4% and US crude oil futures fell 55.4%. The nearly two-year downturn in crude oil prices started from a peak on June 20, 2014.

The above numbers also show USO’s lower returns compared to US crude oil futures. This is due to the small losses that USO suffers when rolling its exposure to active US crude oil futures that were higher in price than the expiring futures contracts in the fund.

Energy sector exposure

For exposure to the energy sector, you might want to look at energy ETFs that invest in oil and gas stocks instead of ETFs that offer direct exposure to energy prices such as USO and UNG. These energy ETFs include the following:

Energy Select Sector SPDR ETF (XLE)
PowerShares DWA Energy Momentum ETF (PXI)
Vanguard Energy ETF (VDE)
iShares US Energy ETF (IYE)
Fidelity MSCI Energy ETF (FENY)
SPDR S&P Oil & Gas Exploration & Production ETF (XOP)

In the next part, we’ll look at XLE’s performance compared to other SPDR ETFs.