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Is there an ETF that very closely tracks the price of gasoline? In lieu of that, which ETF best tracks the price of crude oil?

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There is no ETF that closely tracks oil or gasoline. This is because all existing oil and gasoline ETFs hold futures contracts or other derivatives. Storing the oil and gasoline would be prohibitively costly.

Futures contracts are prone to contango and backwardation, sometimes resulting in large deviations from the price of the physical commodity.

Contrast oil ETFs with metal ETFs, which track nicely.

EDIT: See this article about contango. The UNG chart is particularly ugly.

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  • From the profile for UGA: The investment seeks to track, net of expenses, the changes in percentage terms of the price of gasoline. The trust will invest in the futures contract on unleaded gasoline delivered to the New York harbor traded on the New York Mercantile Exchange that is the near month contract to expire. ---- I'll leave it as an exercise for you to provide sufficient data showing this ETF fails to live up to its goal. I believe "UGA" is the answer to the poster's question. – JTP - Apologise to Monica May 6 '11 at 14:51
  • Again, it holds futures contracts. The fund is relatively new and conditions so far have been favorable to its quirky design. You will have sufficient data after a period of contango, but the concept is pretty clear without it. – James Roth May 6 '11 at 18:19
  • I appreciate your patience and explanation. I updated my own answer to agree with you. The tickers I posted still offer a look at the situation, but I agree (and stated in my answer) that the products themselves are losers. – JTP - Apologise to Monica May 7 '11 at 14:20
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Do not buy any commodity tracking ETF without reading and understanding the prospectus. Some of these things get exposure to the underlying commodity via swaps or other hocus-pocus derivatives, so you're really buying credit obligations from some bank. Others are futures based, and you need to understand your potential upside AND downside.

If you think that oil prices are going to continue to rise, you should look into sector funds, or better yet individual stocks that are in the oil or associated businesses. Alternatively, look at alternative investments like natural gas producers or pipeline operators.

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UNG United States Natural Gas Fund Natural Gas

USO United States Oil Fund West Texas Intermediate Crude Oil

UGA United States Gasoline Fund Gasoline

DBO PowerShares DB Oil Fund West Texas Intermediate Crude Oil

UHN United States Heating Oil Fund Heating Oil

I believe these are as close as you'd get. I'd avoid the double return flavors as they do not track well at all.

Update - I understand James' issue. An unmanaged single commodity ETF (for which it's impractical to take delivery and store) is always going to lag the spot price rise over time.

The Contago Effect

And therefore, the claims of the ETF issuer aside, these products will almost certain fail over time. As shown above, When my underlying asset rises 50%, and I see 24% return, I'm not happy. Gold doesn't have this effect as the ETF GLD just buys gold, you can't really do that with oil.

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  • There's also BNO, United States Brent Oil, similar to USO but supposedly has less contango. – Steve Kuo May 6 '11 at 4:26

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