Check out the top 4 stocks to watch in October 2022
tastytrade logo
oil market indicators

Mar 7, 2022

Best Oil ETFs to Watch

By:James Blakeway

As the world watches the continued tragedy unfold in Ukraine, commodity markets demonstrate further volatility. The oil markets repeatedly make headlines as WTI crude oil futures (/CL) surpass price levels not seen in the past decade. Last Thursday saw the front month, April /CL, contracts trade above $116.50 per barrel, before closing at $108.50. Keep in mind that the futures ended 2021 below $76.

The intra and inter-day volatility in crude oil maybe here to stay for the time being. Meaning that traders should be prepared for further swings in the oil contracts and impacts throughout the markets. This perhaps begs the question: “how can an investor get exposure to the oil markets without trading futures?”

Top 3 oil ETFs to watch

1. United States Oil Fund (USO)

2. S&P Energy Sector ETF (XLE)

3. S&P Oil and Gas Exploration and Production ETF (XOP)

There are multiple exchange-traded securities available that move with the price of oil due to their direct relationship to the commodity. One such product is the United States Oil Fund (USO) which provides investors access to a portfolio of oil futures. Additionally, there is the XLE, SPDR S&P Energy Sector exchange-traded fund (ETF), which tracks all the energy stocks in the broader S&P 500 index. Lastly, there is the SPDR S&P Oil and Gas Exploration and production ETF (XOP). For XOP, the portfolio focus is in the name. 

All three of these ETFs outpaced the S&P 500 for the start of the year. All posting returns over 20%, while the S&P 500 ETF is down around 10% year-to-date.

Whether trading the shares of these funds or utilizing the options contracts, it’s useful to know the construction of each product.

To trade oil ETFs, oil futures, and more, open an account on tastyworks

1) United States Oil Fund – USO

USO is a unique fund and rather complex compared to a traditional stock-based ETF. USO’s portfolio is constructed from oil futures. The fund purchases contracts of the /CL futures and must roll the contracts to new months as they approach settlement. Currently, the portfolio targets around 20% in the May futures and 20% in the June futures. This means that USO exhibits a lower sensitivity to prices in the Oil market currently, as the active April futures move more aggressively than the May or June contracts. So, while USO provides exposure to the oil futures market, it does not directly track the more volatile, front month futures.

2) SPDR S&P Energy Sector ETF - XLE

XLE provides traders and investors access to all energy stocks within the S&P 500, a total 21 stocks comprising 3.8% of the index. Here are the top 10 current holdings:

XLE holds its positions in the same proportions they maintain in the overall index. Exxon Mobil (XOM) comprises around 0.92% of the S&P 500 but 23% of XLE. Investors or traders with positions in XOM or Chevron (CVX) which makes up 21% of XLE, may want to consider this before adding XLE positions.

3) SPDR S&P Oil and Gas Exploration and Production ETF – XOP

Compared to XLE, the Oil and Gas Exploration and Production ETF has a much more diverse portfolio of holdings, including 59 different stocks with no one holding accounting for more than 3% of the overall fund:

XOP may fit portfolios looking to add diverse positions that are not tied to the largest oil and energy companies in the S&P 500. However, it is worth noting that if traders add both XOP and XLE positions, the two funds are highly correlated to one another at around 0.83 currently.

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Related Posts

tastytrade content is provided solely by tastytrade, Inc. (“tastytrade”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, transaction or investment strategy is suitable for any person. Trading securities can involve high risk and the loss of any funds invested. tastytrade, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors, and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastytrade is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparison, statistics, or other technical data, if applicable, will be supplied upon request. tastytrade is not a licensed financial advisor, registered investment advisor, or a registered broker-dealer. Options, futures and futures options are not suitable for all investors. Prior to trading securities products, please read the Characteristics and Risks of Standardized Options and the Risk Disclosure for Futures and Options found on 

tastytrade is a trademark/servicemark owned by tastytrade.

tastyworks, Inc. ("tastyworks") is a registered broker-dealer and member of FINRA, NFA and SIPC. tastyworks offers self-directed brokerage accounts to its customers. tastyworks does not give financial or trading advice nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastyworks’ systems, services or products. tastyworks is a wholly owned subsidiary of tastytrade, Inc (“tastytrade”).

tastyworks, Inc. (“tastyworks”) has entered into a Marketing Agreement with tastytrade (“Marketing Agent”) whereby tastyworks pays compensation to Marketing Agent to recommend tastyworks’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastyworks. tastytrade is the parent company of tastyworks. tastyworks and Marketing Agent are separate entities with their own products and services. tastytrade has different privacy policies than tastyworks.

Quiet Foundation, Inc. (“Quiet Foundation”) is a wholly-owned subsidiary of tastytrade The information on is intended for U.S. residents only. All investing involves the risk of loss. Past performance is not a guarantee of future results. Quiet Foundation does not make suitability determinations, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of Quiet Foundation’s systems, services or products.

© copyright 2013 – 2022 tastytrade. All Rights Reserved. Applicable portions of the Terms of use on apply. Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastytrade’s podcasts as necessary to view for personal use.