How Low will Oil Go?

One of the big stories in 2008 was the rise and fall of commodity prices including the biggest commodity of them all – oil.

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After a short lived comeback at the beginning of 2009, spot prices for oil have dropped back to their December lows and threaten to go lower.

According to a report by the Associated Press, spot prices could weaken even further due to the combination of a declining global economy and a shortage of facilities to store oil as traders wait for price strength to return.

The $2.5 billion United States Oil Fund (USO) provides a way to gain exposure to spot oil prices with an ETF.  The fund is designed to track the spot price movements of light, sweet crude oil. The portfolio consists of listed crude oil futures contracts and other oil related futures, forwards, and swap contracts.

Another ETF that provides exposure to spot oil prices is the DB Oil Fund (DBO) which carries an expense ratio of 0.54%, slightly higher than USO’s 0.50%.

Investors looking for exposure to future prices should look into the United States 12 Month Oil Fund (USL).  The fund is designed to track the price movements of light, sweet crude oil as measured by the changes in the average of the prices of 12 Futures Contracts consisting of the near month contract to expire and the contracts for the following eleven months.

For more, see the special report Investing in Oil with ETFs and the ETF Directory for a complete listing of Commodity ETFs.