Skyrocketing oil prices became a major concern for consumers when an upward 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. Today, after six months of declines, oil prices are still about 30% higher than they were in January 2020, just prior to the COVID-related shutdowns that sent demand — and prices — plummeting.
Investors all-in on oil have seen gains, though, cashing in on high oil prices. One way they’ve done this has been by investing in oil exchange-traded funds. Here are three of the most compelling options available in 2023.
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 and 40% short-term — regardless of how long the options are held, with investors receiving a Schedule K-1 every tax year.
BNO is trading at $28.57 as of Jan. 20. Here’s a quick snapshot of how this oil ETF is doing across a few dimensions.
- Performance: BNO is down slightly year-to-date and has grown nearly 20% during the past 12 months.
- Returns: Investors who bought BNO shares at the start of 2023 have experienced a -0.91% return. Those who’ve held this oil ETF for 12 months have seen their returns grow 19.34%.
- Annual Dividend and Percentage Yield: None.
- Volatility: With a beta of 1.09, BNO’s performance tends to be a bit more erratic than the overall market, reflecting trends in oil prices.
- 10-Day Average Volume: BNO’s average daily trading volume stands at around 0.30 million.
The United States Brent Oil Fund LP is considered a good alternative to the S&P GSCI Crude Oil benchmark, outperforming it over one, three and five years. 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 12 Month Oil Fund LP (USL)
The United States 12 Month Oil Fund LP closely tracks the spot price of light, sweet crude using an average of the 12 nearest-month NYMEX WTI crude oil futures contracts. Spreading the contracts out over 12 months reduces the fund’s sensitivity to short-term fluctuations in spot oil prices. Note, however, that the fund’s structure could result in a K-1 at tax time.
USL is trading at $35.70 as of Jan. 20. Here’s a quick look at how it is doing in 2023.
- Performance: USL has seen an increase of 1.38% year-to-date and has grown over 16% during the past 12 months.
- Returns: Investors who jumped in on this oil ETF at the start of 2023 have enjoyed a year-to-date return of 1.38%. Those who’ve held this investment for a year have seen its value generate 16.25% in returns.
- Annual Dividend and Percentage Yield: None.
- Volatility: With a beta of 0.91, USL’s market performance tends to be less erratic compared to BNO and the overall market.
- 10-Day Average Volume: Roughly 0.02 million shares are traded daily.
The fund’s fact sheet recommends that investors buying or selling USL should consider using limit orders, where you specify the maximum price to pay or the minimum price to sell, to manage spreads.
ProShares K-1 Free Crude Oil Strategy ETF (OILK)
Like USL, 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. The first follows a monthly roll schedule while the second and third hold June through December contracts, which are rolled 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 has become fairly common among commodities. OILK weighs all three contract maturities equally and balances its holdings semi-annually.
OILK currently trades at $45.71. Here’s a look at how this oil ETF is faring in 2023.
- Performance: OILK has seen an increase of a little more than 1% year-to-date. It’s up just under 1% over the past year.
- Returns: OILK has generated 1.6% in returns year-to-date. This oil ETF has remained essentially level during the past 12 months — a period during which both BNO and USL had significant gains. However, OILK pays hefty dividends that might appeal to income investors.
- Annual Dividend and Percentage Yield: $31.91 and 70.06%, respectively.
- Volatility: With no beta score, OILK is likely to have low volatility in keeping with its low returns.
- 10-Day Average Volume: Around 0.03 million 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.
Final Take
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.
Daria Uhlig contributed to the reporting for this article.
Information is accurate as of Jan. 20, 2023.