Oil ETFs - There are Many Oil ETFs - Which Will Work for You?

One popular way to diversify your portfolio is to add some funds or assets that are not correlated strongly to the overall market. Historically precious metals like gold or silver were the traditional ways to go about doing this. Typically this was done by actually buying gold bullion or coins, and physically taking possession. But there are many more commodities that would be serve to diversify your portfolio as well, and energy stocks and investing in oil stocks are a popular way to do this, since taking physical possession of oil is not really practical (except for filling your gas tank perhaps). You could trade oil futures, but the average investor isn't typically trading futures, so the oil stocks were the next best thing.

However, over the last few years there have been some Exchange Traded Funds introduced that either track the price of oil or some oil proxy, or give you the opportunity to do something more than simply track the price of oil, like add leverage, or effectively short the price of oil by buying the inverse of oil price changes. Let's take a look at a few of these oil ETFs to see which might work for you.

First there are the ETFs that simply track the price of one of the oil benchmarks directly. These include the

USO: United States Oil

UHN: United States Heating Oil

USL: United States 12 Month Oil

OLO: PowerShares DB Crude Oil Long ETN.

OIL: iPath S&P GSCI Crude Oil Total Return Index ETN

Now, if you are really bullish, you may decide that you don't just want the price of your ETF to change with the price of oil, but you want it to be leveraged, and move faster than the price of oil. So, in that case, the leveraged ETFs that change approximately twice as fast as the daily change in oil prices might be what you're looking for. Just keep in mind that they go down about twice as fast as well.

DXO: The PowerShares DB Crude Oil Double Long ETN

UCO: ProShares Ultra DJ-UBS Crude Oil

Maybe you feel the price of oil is ready to drop. You can always short the oil ETFs, but you typically can't do that in many accounts like an IRA. Never fear, there are ETF's that go up in price as the price of oil drops, once again the daily price change is targetted to go up in percentage approximately as much as the price of oil drops. These include

SZO: PowerShares DB Crude Oil Short ETN

DTO: PowerShares DB Crude Oil Double Short Exchange Traded Note

One thing to keep in mind with buying oil instead of oil companies or stocks is that oil doesn't really create value. A company will ideally be generating profits, so there is some revenue and stock profit to be had even if the price of oil doesn't increase. So if trying to get some exposure to the oil sector is more what you had in mind, perhaps because you thought the price of oil was already high, then you may be better served by buying oil sector ETFs that hold shares of companies in the oil sector.

Some of these include:

OIH Oil Service HOLDRS T

IEO iShares Dow Jones U.S. Oil & Gas Exploration & Production Index Fund

IEZ iShares Dow Jones US Oil Equipment & Services

XES SPDR S&P Oil & Gas Equipment & Services

XOP SPDR S&P Oil & Gas Exploration & Production