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The Best Oil ETFs for 2022

WITHskyrocketing oil prices have been a growing concern for most consumers since this upward trend began in early 2022, when the COVID-19 pandemic began to subside. Russia’s invasion of Ukraine only made matters worse, sending oil prices soaring and leading to supply concerns that hurt American consumers at gas stations.

Investors who went all in on oil saw bigger gains, cashing in on skyrocketing oil prices. One way they did this was by investing in oil ETFs and stocks. Here are three of the most attractive options available in 2022.

American Brent Oil Fund LP (BNO)

The U.S. Brent Oil Fund LP replicates the performance of the spot price of Brent crude oil — a light gasoline option considered by many to be an excellent choice for gasoline production — by tracking the benchmark of short-term futures contracts. BNO has a commodity fund investment structure, meaning that capital gains are taxed at a mixed rate — 60% long-term and 40% short-term — regardless of how long the options are held, with investors receiving a K-1 each tax year.

Over the past year, BNO’s share price has gradually increased from $18.88 to $30.27. Here is a snapshot of the state of this oil ETF in several dimensions.

  • Performance: BNO has seen an increase of almost 45% since the beginning of the year, a growth of just over 60% in the last 12 months alone.
  • Return: Investors who bought BNO shares in early 2022 have experienced a 44.76% year-to-date return. Those who have held this oil ETF for 12 months have seen their returns grow at a rate of about 60.33%.
  • Annual dividend and yield percentage: No.
  • volatility: With a beta of 0.95, BNO’s performance tends to be slightly less volatile than the overall market, reflecting oil price trends.
  • 10-day average volume: BNO’s average daily trading volume is around 567,435.

The US Brent Oil Fund LP is considered a good alternative to the benchmark West Texas Intermediate. Before jumping into BNO, investors should pay attention to the short-term focus of this oil ETF, which is highly sensitive to daily oil price fluctuations.

United States Oil Fund LP (USO)

United States Petroleum Fund LP closely monitors the current price of light and sweet crude oil produced by West Texas Intermediate. This fund tracks the performance of an underlying benchmark focused on short-term oil futures. Like BNO, USO has a commodity fund investment structure, meaning investors must pay capital gains on this oil ETF as well, and should expect a K-1 at tax time.

Over the past year, USO’s share price has gradually increased from $49.04 to $73.74. Here is a brief overview of the state of the USO in 2022.

  • Performance: USO is up over 35% year-to-date and has grown over 50% over the past 12 months.
  • Return: USO investors who jumped into this oil ETF in early 2022 have enjoyed a year-to-date return of 35.65%. Those who held this investment for a year saw its value generate a 50.37% return.
  • Annual dividend and yield percentage: No.
  • volatility: With a beta value of 0.91, USO’s market performance tends to be less volatile compared to BNO and the overall market.
  • 10-day average volume: Approximately 3.06 million USO shares are traded daily.

The Fund may also invest in futures and swap contracts from time to time, depending on market conditions. The contracts held by the fund are all WTI derivatives.

ProShares K-1 Free Crude Oil Strategy ETF (OILK)

Like the USO, the ProShares K-1 Free Crude Oil Strategy ETF also tracks a benchmark focused on the WTI crude oil contract. But OILK is not designed to work in line with WTI crude oil prices. Instead, the performance of this fund is based on rotating WTI crude oil futures contracts.

OILK offers exposure to three separate WTI crude futures contracts. The first follows a monthly schedule, while the second and third have contracts from June to December, which change every March and September, respectively. The fund’s exposure to oil futures is based on a wholly-owned subsidiary in the Cayman Islands, a move that has become quite common among commodities. OILK weighs all three contract maturities equally and balances its shares semi-annually.

Here’s a look at how this oil ETF is doing in 2022.

  • Performance: OILK is up just over 24% year-to-date — a significant increase compared to the past 12 months, when it fell nearly 17%.
  • Return: In 2022, OILK achieved a 24.28% year-to-date return. Still, this oil ETF hasn’t been too promising for long-term investors, losing 16.9% over the past 12 months — a period during which both BNO and USO have made significant gains.
  • Annual dividend and yield percentage: $29,725; 58.79%
  • volatility: With a beta of 0.83, OILK tends to be much less volatile than BNO, USO and the overall market.
  • 10-day average volume: About 35,490 stocks, which is relatively small compared to other oil ETFs

Organized as an open-ended ETF rather than a pool of assets, investors in OILK are not given a complicated K-1 form at tax time.

Final Take

While investing in commodities like oil can help diversify a portfolio and protect against inflation, daily fluctuations in supply and demand tend to affect prices. Anyone looking to add oil ETFs or oil-related stocks to their portfolio should consider current oil market conditions before investing.

Oil ETF FAQ

  • Are oil ETFs a good buy?
    • Not always. Oil prices fluctuate based on supply and demand — this means that oil prices generally rise when oil is scarce and fall when there is an excess. This affects the share price and the performance of oil ETFs. Investors should research the state of the oil industry as a whole and how oil ETFs have performed over the past year before adding this commodity to their portfolio.
  • Does Vanguard have an oil ETF?
    • Yes, there is: Vanguard Energy ETF (VDE). This fund tracks a benchmark focused on oil and energy stocks, rather than trying to track crude oil futures returns. While its market performance is a little more volatile than the overall market, VDE has seen growth of 54.8% over the past 12 months and boasts an annual dividend yield of 3.08% to 3.09% — or $3.34 per share .
  • Is USO a good way to invest in oil?
    • USO is a good short-term investment when oil prices are rising. This fund is structured as a commodity fund that uses oil futures to insure returns. However, negative investments in these assets can lead to long-term losses. Long-term investors should look at other investments to hedge against this.

Daria Uhlig contributed reporting for this article.

The information is correct as of July 19, 2022.

This article originally appeared on GOBankingRates.com: The Best Oil ETFs for 2022

The views and opinions expressed herein are those of the authors and do not necessarily reflect those of Nasdaq, Inc.

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