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Saturday, October 27, 2007

Owning oil ETF takes the sting out of buying home heating oil

Earlier this week I had this year's first load of heating oil delivered for my drafty, 100 year old house. The cost was a good 25% higher than last year. I was astounded.

Based on emotion, I resolved to find my personal energy hedge against rising prices.

A year or so ago, as a result of rising prices at the gas pump, I had bought shares of XLE, the Energy Select Sector SPDR ETF. I naturally turned to that idea again. On thinking about it, however, I recalled that a number of energy companies had seen earnings reduced lately due to a falloff in refining profits. Maybe I could do better than XLE.

So I thought about the ETFs that track indexes of the actual commodities. The PowerShares DB Energy (DBE) tracks a mix of energy products including Light Sweet Crude Oil, Heating Oil, Brent Crude Oil, RBOB gasoline and Natural Gas. The alternative was PowerShares DB Oil (DBO) that tracks only Light Sweet Crude Oil. Performance of DBE was slightly better than the performance of DBO but, for me, DBO seemed easier to understand as there was only one component to it. I am clearly not an expert in energy markets, so from my point of view, the simpler the investment, the better. In addition, the performance of crude oil is discussed endlessly in most financial publications and web sites so I knew it would be easy to keep track of what was going on in that market.

So that was the decision. I purchased shares of DBO on Wednesday at $31.63. As of the end of the week, DBO was up to $32.88 for a quick 3.95% gain. There is continued talk in energy markets that, at this point, $100 oil is nearly a given. That should keep a floor under DBO for a while.

I'll be sure to tell the family they can turn on the thermostat this weekend.

Disclosure: author is long DBO

1 comment:

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