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Why This Oil ETF Could Do Better Than Crude

Dan Caplinger
April 18, 2013

When it comes to investing in energy, oil ETF shares haven't delivered very good returns historically. But more recently, a somewhat unusual phenomenon in the oil futures markets could make oil ETF prices deliver better returns than the spot price of crude.

Why futures matter for oil ETFs
The name of that phenomenon is backwardation, and the reason it's important has to do with the strategy that the typical oil ETF uses to track crude prices. Many commodity ETFs, such as iShares Silver Trust (NYSEMKT: SLV) and SPDR Gold (NYSEMKT: GLD), actually buy the underlying physical commodity, storing it in a vault for safekeeping and thereby connecting the value of the ETF share to an actual portion of the ETF's commodity holdings.

For oil ETFs, h