What is ‘Oil ETF’

A category of exchange-traded funds that invest in companies engaged in oil and gas discovery, production, distribution and retail. Some oil ETFs may be set up as commodity pools – with limited partnership interests instead of shares – and invest in derivative contracts such as futures and options.

The benchmark target for an oil ETF may be a market index of oil companies or the spot price of crude itself, and funds may be focused on just United States-based companies or invest around the world. There are even inverse ETFs for oil and other sectors that move in an equal and opposite direction to the underlying index or benchmark. Oil ETFs will attempt to track their relevant index as closely as possible, but small performance discrepancies will be found, especially over short time frames.

Explaining ‘Oil ETF’

Oil ETFs have a high level of demand from investors because oil is such a pervasive commodity in the modern global economy. Almost every end product used by people, companies and governments is in some way affected by the price of oil, either as a raw component or through the costs of energy, transportation and product distribution.

Further Reading

  • Return spillovers between white precious metal ETFs: The role of oil, gold, and global equity – www.sciencedirect.com [PDF]
  • An inverted U-shaped crude oil price return-implied volatility relationship – www.sciencedirect.com [PDF]
  • Modeling and predicting oil VIX: Internet search volume versus traditional mariables – www.sciencedirect.com [PDF]
  • A taxonomy of the 'dark side'of financial innovation: the cases of high frequency trading and exchange traded funds – www.inderscienceonline.com [PDF]
  • Expected shortfall assessment in commodity (L) ETF portfolios with semi-nonparametric specifications – www.tandfonline.com [PDF]
  • The economic value of Bitcoin: A portfolio analysis of currencies, gold, oil and stocks – www.sciencedirect.com [PDF]
  • Downside risk management and VaR-based optimal portfolios for precious metals, oil and stocks – www.sciencedirect.com [PDF]
  • Dynamic dependence between ETFs and crude oil prices by using EGARCH-Copula approach – www.sciencedirect.com [PDF]
  • Latent Volatility Granger Causality and Spillovers in Renewable Energy and Crude Oil ETFs – papers.ssrn.com [PDF]