Best Oil ETFs for 2022
Skyrocketing oil prices have been a growing concern for most consumers since this trend began in early 2022, as the COVID-19 pandemic began winding down. Russia’s invasion of Ukraine only made matters worse, sending oil prices soaring and leading to supply concerns that have hurt American consumers at the gas pump.
Investors all-in on oil have seen larger gains, though, cashing in on skyrocketing oil prices. One way they’ve done this has been by investing in oil ETFs and stocks. Here are three of the most compelling options available in 2022.
United States Brent Oil Fund LP (BNO)
The United States Brent Oil Fund LP replicates the performance of the spot price of Brent crude oil — a light petrol option that many consider a great choice for gasoline production — by tracking a benchmark of short-term futures contracts. BNO has a commodity pool investment structure, meaning capital gains are taxed at a blended rate — 60% long-term; 40% short-term — regardless of how long the options are held, with investors receiving a K-1 every tax year.
During the past year, BNO’s share price has gradually risen from a low of around $15.48 to a high of $36.84. Here’s a quick snapshot of how this oil ETF is doing across a few dimensions.
- Performance: BNO has seen an increase of nearly 45.2% year-to-date, growing a little more than 86.1% during the past 12 months alone.
- Returns: Investors who bought BNO shares at the start of 2022 have experienced a year-to-date return increase of nearly 45.2%. Those who’ve held this oil ETF for 12 months have seen their returns grow at a rate of around 86.1%.
- Annual Dividend and Percentage Yield: None.
- Volatility: With a beta of 1.36, BNO’s performance tends to be a bit erratic compared to the overall market, reflecting the sharp rise and eventual fall of oil prices.
- 10-Day Average Volume: BNO’s average daily trading volume stands at around 2.82 million.
The United States Brent Oil Fund LP is considered a good alternative to the West Texas Intermediate benchmark. Before jumping in on BNO, investors should note the short-term focus of this oil ETF, which is highly sensitive to daily oil price fluctuations.
United States Oil Fund LP (USO)
The United States Oil Fund LP closely tracks the spot price of the light and sweet crude oil that West Texas Intermediate produces. This fund mimics the results of an underlying benchmark centered around short-term oil futures contracts. Like BNO, USO has a commodity pool investment structure, which means investors must pay capital gains on this oil ETF, too, and should expect a K-1 at tax time.
During the past year, USO’s share price has gradually risen from a low of around $39.52 to a high of $87.84. Here’s a quick look at how USO is doing in 2022.
- Performance: USO has seen an increase of nearly 39% year-to-date, and has grown almost 80.6% during the past 12 months.
- Returns: USO investors who jumped in on this oil ETF at the start of 2022 have enjoyed a nearly 39% return year-to-date. Those who’ve held this investment for a year have seen its value double, generating nearly 80.5% in returns during the past 12 months.
- Annual Dividend and Percentage Yield: None.
- Volatility: With a beta of 1.35, USO’s market performance tends to be as erratic as BNO’s compared to the overall market.
- 10-Day Average Volume: Roughly 6.75 million shares of USO are traded daily.
The fund also may invest in forward and swap contracts from time to time depending on market conditions. The contracts held by the fund are all derivatives of WTI.
ProShares K-1 Free Crude Oil Strategy ETF (OILK)
Like USO, ProShares K-1 Free Crude Oil Strategy ETF also tracks a benchmark centered around WTI crude oil contracts. But OILK isn’t designed to perform in line with the WTI crude oil prices. Instead, this fund’s performance is based on the rolling of WTI crude oil futures contracts.
OILK offers exposure to three separate WTI oil futures contracts. This first follows a monthly roll schedule while the second and third hold June through December contracts, which are rolled annually every March and September respectively. The fund’s oil futures exposure is based on a wholly-owned subsidiary in the Cayman Islands, a move that’s become fairly common among commodities. OILK weighs all three contract maturities equally and balances its holdings semi-annually.
Here’s a look at how this oil ETF is faring in 2022.
- Performance: OILK has seen an increase of a little more than 35.5% year-to-date — a significant boost compared to the past 12 months when it only grew at a rate of 0.62%.
- Returns: In 2022, OILK has generated 35.3% in returns year-to-date. This oil ETF hasn’t been too promising for long-term investors, though, only generating a 0.5% rate of return during the past 12 months — significantly lower than both BNO and USO.
- Annual Dividend and Percentage Yield: $30.05; between 54% and 55%.
- Volatility: With a beta of 2.54, OILK tends to be much more erratic than BNO and USO, moving twice the rate of the overall market.
- 10-Day Average Volume: Around 47,073 shares, which is relatively light compared to other oil ETFs.
Organized as an open-ended ETF rather than a commodities pool, OILK investors don’t receive a complicated K-1 form at tax time.
While investing in commodities like oil can help diversify a portfolio and hedge against inflation, daily supply-and-demand fluctuations tend to impact prices. Anyone looking to add oil ETFs or oil-related stocks to their portfolio should consider current oil market conditions before investing.
Oil ETF FAQWhenever investors want to build or expand their portfolios, questions emerge. Here are answers to the most common questions regarding investments in oil ETFs.
- Are oil ETFs a good buy?
- Not always. Oil prices fluctuate based on supply and demand -- that means oil prices generally rise when oil's scarce and fall when there's a surplus. This impacts the share price and performance of oil ETFs. Investors should research the state of the oil industry as a whole and how oil ETFs have performed during the past year or so ahead of adding this commodity to their portfolio.
- Does Vanguard have an oil ETF?
- Yes, it does: the Vanguard Energy ETF (VDE). This fund tracks a benchmark centered around oil and energy stocks, rather than attempting to track the returns of crude oil futures. While its market performance tends to be a bit more erratic than the overall market, VDE has experienced 54.8% growth during the past 12 months and boasts an annual dividend yield of 3.08% to 3.09% -- or $3.34 per share.
- Is USO a good way to invest in oil?
- USO is a good short-term investment when oil prices are on the rise. This fund's structured as a commodity pool that uses oil futures contracts to provide returns. Negative rolls on these assets can lead to long-term losses, though. Long-term investors should look into other investments to hedge against this.
Information is accurate as of April 6, 2022.
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- The Economic Times. 2022. "Oil Starts New Year on Positive Note, Pandemic Worries Curb Gains."
- BBC. 2022. "Ukraine Conflict: Petrol at Fresh Record as Oil and Gas Prices Soar."
- U.S. Securities and Exchange Commission. "424B3 - UNITED STATES OIL FUND, LP."
- U.S. Energy Information Administration. "What Drives Crude Oil Prices?"