Boost Your Portfolio with These Oil ETFs Now

Crude oil prices are up a whopping 42% from the start of the year. They have pushed up to their highest levels seen since the very beginning of November 2018 and remain avery much on the path to a robust recovery, with yet a major sign of a slowdown in sight. Given the buoyancy of the market, let’s take a look at some attractive potential areas of investment in the oil sector.

Investing in ETFs

In the previous article, I touched upon the way in which you can add the exposure of the oil market to your portfolio.

We are now going to be exploring some of the current top performing oil-related exchange-traded funds (ETFs) and how they could have an impact on your portfolio. However, before we jump into that, it is worth knowing what an ETF is for those who are unaware.

Exchange traded funds are securities that you can buy or sell via a brokerage on a stock exchange. They are ‘exchange-traded’ in that they are traded on major stock exchanges, like the New York Stock Exchange and Nasdaq. ‘Fund’ is a collection of tens, hundreds, or even thousands of stocks or bonds in a single asset. They are very similar to owning a mutual fund, i.e., holding an ETF will feel familiar because it has the same built-in diversification benefits and low costs.

Oil ETFs Overview

It has been tough times generally for oil exchange-traded funds. Crude prices hit a large bear market last year, where prices were very much depressed. The large glut of oil was an issue in the back end of 2018, and there was too much supply outweighing demand. In 2019, the oil market is in a fast recovery, big thanks to the Organization of Petroleum Exporting Countries (OPEC) for orchestrating an output cut with Russia.

ETF investors can avoid the substantial risks that can be associated with exposure to single stocks that have the tendency to fluctuate based on the direction of oil prices. Try to avoid chasing the very high yields offered by some of the funds, which may not be sustainable. It is also critical to be aware of dividend sustainability.

Technical Review – Crude Oil

WTI Crude Oil chart.

Crude oil is currently on a strong, consistent run to the north. It has been rallying to the upside consecutively over the past few weeks. In the last six consecutive weeks crude oil has closed within the green, part of a significant bounce which commenced in January. At the back end of 2018, the week of 24th December, the closing candle formed a reversal doji, indicating an incoming change in trend. It has risen from depressed levels of $42, up to the heights of $64 at the time of writing on 9th April.

The bulls managed to break above the 61.8% Fibonacci as part of the end of 2018 plummet. A firm weekly candlestick closure above this, tracking around $63.70, should further reconfirm more potential buying to come. It is trading at the highest levels seen since October 2018, when the market was heavily falling.

Aside from this, a region of supply tracks from $64 up to $67 price range. A bullish breakdown of this zone could then open a solid return into the $70 territory, with eyes on $75-$76. The price had last peaked here early October 2018, producing an evening star formation, which indicated the start of a new downside trend.

The above analysis is all very much subject to change given the substantial risk event that surrounds OPEC meetings. It depends on how the market reacts to the action announced, depending on whether the cartel decides to extend the output cut or return to previous conditions.

Top Performing Oil ETFs

Lets now take a look at some of the top performing oil ETFs that could still have much upside potential given the current oil market recovery path.

VelocityShares 3x Long Crude Oil ETN (UWT)

VelocityShares 3x Long Crude Oil ETN chart.

Year to date, UWT is trading up 195%. It has been on a strong move to the north since the start of the year. The direction is replicating what is observed with the oil prices rebound, very closely tracking. There could be room for a further dominant push higher to retrace the fall commenced at the back end of 2018. Should that prove to be the case, UWT could still jump another 95%.

UBS ETRACS ProShares Daily 3x Long Crude ETN (WTIU)

UBS ETRACS ProShares Daily 3x Long Crude ETN (WTIU) chart.

Year to date, WTIU is trading up 180% and is on an aggressive path higher of claiming back the losses of 2018. If the bulls manage to return to pre-fall levels up at $45, this would mean another 115% gain from current levels at the time of writing.

ProShares UltraPro 3x Crude Oil ETF (OILU)

ProShares UltraPro 3x Crude Oil ETF (OILU) chart.

Year to date, OILU is trading up 160%, having bounced from a low down at $12 at the back-end of 2018, following the oil market fall. Eyeing a potential reversal of the 2018 end of year drop, OILU could still have some room to gain another 110% for a return back to $70.

Featured image courtesy of Shutterstock.

Author:
Ken has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.