99 barrels of crude in my backyard, 99 barrels of crude

September 12, 2010 2:33 PM

What is the most direct, but practical, way for an individual to invest in petroleum?

I would like to invest a small portion of my portfolio in oil. Ideally, I could buy actual barrels of crude when prices are low and stack them in backyard so I can sell them when the price goes up again. Obviously this is completely impractical, but what's the closest analog that is practical?

I specifically don't want to invest in oil company stock (since its share price doesn't necessarily correlate to the price of oil) or in futures markets (since I don't want to predict exactly when prices will rise and fall). I especially don't want to have to take delivery or store actual barrels of oil.

The United States Oil Fund (USO) ETF is as close as I've found, but even their fine print says it may not accurately track the spot price of oil. Is there something that does?

posted by tomwheeler to Work & Money (9 answers total)

You've reviewed these previous questions?
posted by Mike1024 at 2:47 PM on September 12, 2010

Here's a list of ETFs that center on the price of oil.
posted by msbutah at 2:51 PM on September 12, 2010

You've reviewed these previous questions?

Yes, most related to short-term investments and one was about futures/options contracts. I'd like to find out what investment best tracks the spot price of oil and is appropriate to hold for an indeterminate period.
posted by tomwheeler at 3:01 PM on September 12, 2010

Generally, 60% of overall oil company stock prices is correlated to the price of oil.
posted by moiraine at 3:05 PM on September 12, 2010

I am not your investment advisor and this is not advice, etc... I wouldn't usually suggest this but since you had enough sense to read the USO prospectus you might consider opening an account at a commodities broker and buy the longest dated futures directly. Just make sure you understand what you are doing and avoid leverage. Even an ETF that invests in 1 year futures contracts is going to get killed because of rolling over their contracts. Even investing in oil services companies may be better correlated with the price of oil then buying oil ETF's because their profits rise so dramatically when the price of oil goes up. This is not the same as investing in oil companies (which don't necessarily correlate to the price of oil as you said).
posted by An algorithmic dog at 3:11 PM on September 12, 2010

One option would be to invest in Master Limited Partnerships. These companies have contracts to carry oil through pipelines, and tend to lock in contract prices, so you are not as exposed to the volatility of oil prices.
posted by dfriedman at 4:20 PM on September 12, 2010

Futures are the right way to do this - if you want to track the spot price, you buy the front month future, then sell it and buy the new future when it gets close to maturity. (Doing it quarterly will get you pretty close to the spot price with less admin.)

The USO fund is a terrible tracker, yes.
posted by The Shiny Thing at 8:48 PM on September 12, 2010

It costs a lot of money to store those barrels, whether it is you or some nameless entity that is doing it. These carrying costs tend to eat into any profits.
posted by smackfu at 8:52 PM on September 12, 2010

It costs a lot of money to store those barrels, whether it is you or some nameless entity that is doing it. These carrying costs tend to eat into any profits.
Obviously you don't want to take delivery.
posted by An algorithmic dog at 8:20 AM on September 13, 2010