What are the best oil ETFs to watch?

Crude oil has had a volatile 2020 so far. Find out how to get exposure to its price movements using oil ETFs here, and discover some top funds to get you started.

Oil ETFs: what you need to know

What are oil ETFs?

Oil exchange traded funds (ETFs) are ETFs that track the price movements of oil markets – usually either crude itself or stocks involved in oil and gas. They offer a way to invest in oil without buying and selling futures.

You can use oil ETFs to speculate on the price movements of a single market such as Brent, get exposure to a basket of commodities, or invest in a group of petroleum companies. Some even enable you to go short on an underlying index or offer leveraged returns.

Oil ETFs vs ETCs

There are two main types of oil ETF: commodity ETFs and exchange traded commodities (ETCs). Both track the price of their underlying assets, but they do so in different ways.

Commodity ETFs hold assets that enable them to track the price of their chosen index. The SPDR® S&P Oil & Gas Exploration & Production ETF, for example, aims to track the prices of oil and gas companies in the US – so it holds shares in those businesses. Other ETFs use futures or bonds to track WTI or Brent prices.

ETCs, on the other hand, use a debt instrument underwritten by a bank to track the price of one or more commodities. They use their holdings as collateral for the debt instrument. This makes them similar to exchange traded notes (ETNs).

Find out more about how to trade ETFs

Why invest in oil ETFs?

There are lots of reasons for investing in oil ETFs. Perhaps the most popular, though, is that it’s a more straightforward method of getting exposure to movements in oil prices than futures trading.

The vast majority of crude is bought and sold via futures. As well as being used by producers and refiners, futures exchanges are made up of thousands of speculators who try to profit from trading oil contracts – with no intention of taking delivery.

Futures exchanges have strict rules about who can trade on them, so they’re off limits to most retail traders. Even if you’re able to take part, it can be risky. In April 2020, futures traders sent the price of oil contracts briefly into the negative as they scrambled to sell before their contracts expired, which would have forced them to take ownership of thousands of barrels.

To buy and sell oil ETFs, you only need to open an account with a share trading provider. There are no rules about who can invest, and there are no expiry dates involved.

Opening a share trading account with IG takes minutes, and gives you access to thousands of global stocks and ETFs.

How else can I trade oil?

ETFs aren’t the only way of getting exposure to commodities, however. Derivatives such as CFDs enable you to trade directly on the price movements of commodities – including Brent, WTI, natural gas and more – as well as stocks, indices and currencies. You can even use CFDs to short oil prices to profit when the commodity’s in a bear market.

Learn more about the different ways to trade oil

What moves oil markets?

Like any financial asset, oil markets are driven by supply and demand. If supply rises without a drop in demand, oil’s price will fall. Conversely, if supply drops or demand rises, its price will rise.

Despite the rise of alternative energy sources, the global economy is still dependent on crude. So boom periods usually see demand grow, while recessions see it drop.

A handful of countries are responsible for the majority of the world's oil supply, and the Organization of the Petroleum Exporting Countries (OPEC) has a major influence on production levels. However, two big producers – Russia and the US – sit outside of OPEC's jurisdiction. This can lead to price wars, which send supply soaring.

This situation can cause significant volatility in oil prices, which makes risk management an important factor in any strategy – regardless of whether you’re investing via ETFs or trading with CFDs.

The best oil ETFs to watch

  1. WisdomTree Brent Crude Oil
  2. United States Oil Fund, LP (USO)
  3. ProShares Ultra Bloomberg Crude Oil (UCO)
  4. ProShares UltraShort Bloomberg Crude Oil (SCO)
  5. Energy Select Sector SPDR® Fund (XLE)
  6. Invesco S&P SmallCap Energy ETF (PSCE)

These investments were chosen as examples of six different types of oil fund: a Brent oil ETF, a WTI fund, a leveraged oil ETF and a short oil ETF – plus funds that track large- and small-cap oil stocks.

Brent crude oil ETF: WisdomTree Brent Crude Oil (BRNT)

Exchange: London Stock Exchange 12-month return: -61%* Currency: USD

The WisdomTree Brent Crude Oil ETC is designed to track the Bloomberg Brent Crude Subindex. It is collateralised by swaps, which are held with the Bank of New York Mellon.

Buying BRNT gives you exposure to movements in the price of Brent – one of the most popular oil benchmarks in the world, which is classed as oil drilled in North Sea fields.

BRNT posted a positive performance in 2019, but like most oil investments, it plummeted in the early months of 2020. Alongside BRNT, WisdomTree also manages a fund that tracks the price of Brent futures contracts with one-month expiries: OILB.

Crude oil (WTI) ETF: United States Oil Fund, LP (USO)

Exchange: New York Stock Exchange (NYSE) Arca 12-month return: -82%* Currency: USD

The United States Oil Fund seeks to track the daily percentage price changes of light, sweet oil delivered to Cushing, Oklahoma – better known as West Texas Intermediate, or WTI.

WTI is the lightest, sweetest oil of the major benchmarks, meaning it has low sulfur and is of high quality. All WTI is produced in the US.

USO is a commodity ETF, so its holdings are intended to help it track the price of WTI. It mostly achieves this using futures contracts, although it also holds US Treasury bills.

Leveraged oil ETF: ProShares Ultra Bloomberg Crude Oil (UCO)

Exchange: NYSE Arca 12-month return: -94%* Currency: USD

Leveraged oil ETFs are designed to multiply the performance of an underlying index. ProShares Ultra Bloomberg Crude Oil tracks the Bloomberg WTI Crude Oil index – but aims to double its daily movements. So if WTI gains 50 points in a single day, UCO should move up 100 points.

UCO uses futures contracts across the New York Mercantile Exchange (NYMEX) and Intercontinental Exchange (ICE) exchanges to track the price of WTI.

Short oil ETF: ProShares UltraShort Bloomberg Crude Oil (SCO)

Exchange: NYSE Arca 12-month return: 227%* Currency: USD

The ProShares UltraShort Bloomberg Crude Oil, meanwhile, also offers leveraged exposure to WTI. But it’s an inverse ETF, which means it aims to move in the opposite direction. So if WTI gains 50 points in a single day, SCO should move down 100 points.

As an inverse ETF, SCO is a rare oil investment that has grown in price in recent months. Like UCO, it uses futures contracts to track its index.

Large-cap oil ETF: Energy Select Sector SPDR® Fund (XLE)

Exchange: NYSE Arca 12-month return: -38%* Currency: USD

The Energy Select Sector fund is venerable in terms of ETFs – it was launched all the way back in 1998. It tracks the Energy Select Sector index, which includes large-cap companies across the US involved in oil and gas, as well as energy equipment.

XLE’s top holdings are Chevron Corp, ExxonMobil and ConocoPhillips, three of the biggest US petroleum companies.

Small-cap oil ETF: Invesco S&P SmallCap Energy ETF (PSCE)

Exchange: Nasdaq 12-month return: -69% Currency: USD

Invesco’s S&P SmallCap Energy tracks the S&P SmallCap Energy index. It focuses on smaller energy companies that are listed in the US.

PSCE doesn’t only hold oil companies – 6% of its holdings are in Renewable Energy Group, for example. But it does offer exposure to lots of small-cap oil and gas companies, including SouthWestern Energy, Dril-Quip and Range Resources.

How to start trading oil ETFs

  1. Head over to IG Academy for a step-by-step guide to trading financial markets
  2. Open a live account and pick from thousands of global markets, including a range of oil ETFs
  3. Choose your trade and open your first position

If you want to trade on commodity prices, you can open a CFD trading account. CFDs enable you to go long and short on Brent, WTI, natural gas and more.

Alternatively, open a demo to try trading without risking any capital.

Oil ETFs summed up

  • You can use oil ETFs to get exposure to movements in oil’s price – or invest in oil and gas companies
  • There are a few different types available, including leveraged and short ETFs
  • Oil supply and demand is variable, which often leads to volatility in the commodity’s price
  • Create an IG account to take your position, or find out more about oil trading


* Correct as of 4 May 2020

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Trade on commodities

Trade commodity futures, as well as 27 commodity markets with no fixed expiries.1

  • Wide range of popular and niche metals, energies and softs
  • Spreads from 0.3 pts on Spot Gold, 2 pts on Spot Silver and 2.8 pts on Oil
  • View continuous charting, backdated for up to five years

1In the case of all DFBs, there is a fixed expiry at some point in the future.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.


Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.