Oil Investing In 2024: 4 ETFs To Consider For Backing Or Hedging Prices

Crude oil prices have had a pretty dismal year. Ongoing warfare in Ukraine had little long-term impact. Nor, to the utter surprise of commodity analysts, did the renewal of violence between Israel and Hamas.

In every decade since the 1970s, violence in the Middle East, from 1973’s Yom Kippur War through the Gulf conflicts of the 1990s and early 2000s, have caused major spikes in the price of oil.

Crude prices did rise in the opening weeks of the current conflict — Brent crude rose 10.9% between Oct. 6 and Oct. 20. But the fundamental truth is, the Israel-Hamas conflict has had little impact on oil deliveries, and oil prices soon slipped back.

When Red Sea shipping routes to the Suez Canal came under attack by Iran-sponsored Yemeni rebels, oil prices were again forced higher, spiking by 12%. But, again, as shipping resumes through this important trade route, prices are in decline.

Over the year, Brent is down 9.7%, currently standing at $77.59 a barrel, while Nymex WTI, which has suffered similar spikes and troughs, is down 10.4% over the year to $72.07 a barrel.

Investing In Oil In 2024 – Crude Awakenings?

So, is oil worth the trouble? This year marked another year of declines for crude oil, and war in the Middle East didn’t make a significant impact.

Yet, crude prices spiked by nearly 11% as the conflict started. If you’d timed it right, that’s quite a handsome return. Similar with the Yemeni Houthi attacks on shipping.

And by using exchange-traded funds, investors can time their entry and exit from markets on the spot. The United States Oil Fund USO tracks the price of U.S. light-sweet crude, and has been through the same ups and downs as crude prices. It climbed 10% between October 6-20.

Also Read: Inflation Warning For 2024: Red Sea Disruptions Causing Freight Rate Spikes And Higher Costs

And it’s worth keeping a watchful eye on oil prices through 2024. Any escalation in Israel and the Middle East — or in Ukraine for that matter — could have a short-term impact on oil prices.

Looking At The Oil Majors

Investors have alternatives to the price of crude to gain exposure to oil markets. The oil majors — companies such as ExxonMobil XOM, Chevron CVX and BP BP — are doubling down on their bets that oil will be driving industry for many years to come, despite the best intentions of nations to rely less on fossil fuels.

Exxon and Chevron have both entered into merger deals with rival oil producers worth more than $50 billion each. That kind of commitment doesn’t suggest a company that’s loosening its grip on fossil fuels any time soon.

Shares in oil majors have, broadly, followed the trajectory of oil prices. Exxon is down 9.2% over the year, while Chevron is down 16.% and BP is off 2%.

Similarly, the Energy Select Sector SPDR Fund XLE, an ETF that tracks oil majors listed on the S&P 500 index, has fallen by 4% in 2023.

Hedging Your Oil Bets

Given these losses, longer-term investors might want to look at hedging their oil exposure in their portfolios.

Possibly, giving oil and fossil fuels a miss and adopting a greener investment strategy?

Either way, the SPDR S&P 500 Fossil Fuel Reserves Free ETF SPYX, a sister ETF to the SPDR S&P 500 SPY, strips out the companies associated with fossil fuel production, has gained 25.3% over the year, slightly outperforming SPY’s 24.6% gain.

Alternatively, investors could look to small-cap stocks which have little exposure to oil prices. Given the lower interest rate outlook for 2024, many analysts believe it could be a good year for small-cap investing.

The Russell 2000 index has around a 1.5% weighting to companies involved in the production of fossil fuels. The iShares Russell 2000 ETF IWM that tracks the index gained 17% in 2023.

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