The price of oil has been on an upward trend since February. picture alliance / Zoonar | Maksym Yemelyanov
Oil prices have been rising since February to their highest level since autumn 2023, partly due to concerns about a war between Israel and Iran.
Brent crude oil at times cost more than $92. However, after the weekend, the price of the commodity fell to below $90.
Business Insider has checked out how investors can invest in oil. Some products recorded an increase of 22 percent over three months.
Hardly any other raw material reacts as sensitively to international crises as oil. As a result, oil prices rose to their highest level since autumn 2023 on Friday due to concerns about a war between Israel and Iran. North Sea Brent crude oil now cost more than $92. Iran attacked Israel on Monday night with around 300 rockets, drones and cruise missiles, but according to Israeli information, almost all of them were intercepted.
Oil prices for the two reference oil types WTI (West Texas Intermediate) and Brent have been rising since the beginning of February. The attack itself not only left the markets unimpressed, it even set off a countermovement. The price is currently slightly above $90 again, but has since fallen below that.
Development of the oil price (Brent) over three months in US dollars. Finance.net
Why has there been no further price increase so far?
Iran is the seventh largest oil producer in the world and therefore plays an important role on the international market. In the past, military conflicts in the region have often led to an increase in oil prices. The question therefore arises as to why there has been no further price increase. One reason could be that observers were already prepared for the escalation. Both Israel and the USA already feared an attack and expressed this expectation externally.
If trade routes in the region are disrupted, prices of $100 or more per barrel cannot be ruled out.
Although the oil price has briefly ended its upward trend, there are still uncertainties in the market. “In view of the renewed escalation of the situation, the price of crude oil is likely to continue to rise in this environment. If trade routes in the region are impaired, prices of $100 or more per barrel cannot be ruled out,” says an analysis by Jan Holthusen from DZ Bank. “If such an increase in oil prices lasted longer, it would have a negative impact on the already fragile economic situation in Europe,” the analyst continued.
For the capital markets, the events of the weekend would mean a renewed phase of increased uncertainty in the short term. “Gold, which is already booming, is likely to benefit. As is often the case when geopolitical uncertainties increase, the US dollar should also receive a tailwind,” said Holthusen.
22 percent plus over three months – how can investors invest in oil?
Whether energy sources such as oil and gas, precious metals such as gold and silver, or foods such as grain and cocoa – raw materials can diversify an investor’s portfolio. There are several opportunities on the market to invest in oil or other raw materials. On the one hand, there are so-called commodity ETFs. The catch: The index funds replicate a stock index from the raw materials industry. This could, for example, be an index that includes several companies that produce oil. So if you buy an ETF on such an index, you are investing in companies from the oil industry, but not directly in oil.
An example is the iShares Oil & Gas Exploration & Production ETF (ISIN: IE00B6R51Z18), which over three months on a Performance of around 20 percent comes. The ETF tracks the “S&P Commodity Producers Oil & Gas Exploration & Production Index”.
Over three years the index fund achieves an increase of around 104 percent. The largest positions are: the US oil company ConocoPhillips, the US oil company EOG Resources and the Canadian oil and gas exploration, development and production company Canadian Natural Resources, each with around ten percent.
Performance of the iShares Oil & Gas Exploration & Production ETF over three months. Finance.net
On the other hand, investors can rely on ETFs that do not track a stock index, but rather a raw material index. Such indices summarize the price development of different raw materials such as gold, silver, oil or gas, but also cattle or grain.
However, they do not reflect the price of the raw materials themselves, but rather that of so-called futures. A future is also called a commodity futures contract. It is a certificate that agrees to purchase the raw material at a certain point in the future. Why invest in commodity ETFs in futures and not directly in the commodities? Quite simply, the ETF provider would then have to store the corresponding raw materials, which would incur costs.
One of the best-known commodity indices is the “Bloomberg Commodity Index”. There are different ETFs that track the index. An example is the WisdomTree Broad Commodities ETF (ISIN: IE00BKY4W127). The ETF is coming over three months to a Plus of around 10 percent. Since launch In November 2021, the index fund achieved a performance of around 19 percent.
However, with such a commodity ETF you can only replicate one index, i.e. a basket of several commodities. The price development of an individual raw material cannot therefore be reproduced. Because an ETF in Germany must contain different assets. If you would like to invest in a single commodity, a commodity ETC would be an alternative.
Bet on the price of oil with ETCs
One way to bet solely on the price of oil is through so-called ETCs – Exchange Traded Commodities. Even though the names ETF and ETC are similar, there is an important difference for investors: Unlike an ETF, an ETC is not a fund, but a debt security. This creates a so-called issuer risk. If the publisher of the ETC goes bankrupt, your money could be gone. A commodity ETC is therefore riskier than an ETF.
In order to participate in the price development of oil, you can use oil ETCs. But here too, investments are only made in futures contracts on the raw material and it is also not a direct investment in oil. The ETCs reflect the price of either Brent crude oil from the North Sea or the American West Texas Intermediate (WTI).
An example in this case is WisdomTree Brent Crude Oil (JE00B78CGV99). over three months on a performance of 21.5 percent comes. Over a year the ETC is approximately 21 percent.
Performance Oil ETC (Brent). Finance.net
Another example is the WisdomTree WTI Crude Oil (GB00B15KXV33). over three months to an increase of 22 percent comes. Over a year the ETC is approximately 20 percent.
Performance of Oil ETC (WTI). Finance.net
Whether investors prefer to rely on ETFs or ETCs depends on individual preferences. Above all, it is important to check the fees for the respective productsto avoid unnecessary costs.
The data comes from finanzen.net and justetf. The access date was April 16, 2024. For comparable ETFs and ETCs, the one with the better performance at that time was chosen. This is not a comprehensive ranking.
Disclaimer: Stocks and other investments generally involve risk. A total loss of the capital invested cannot be ruled out. The articles, data and forecasts published are not a solicitation to buy or sell securities or rights. They also do not replace professional advice.