Recently, while researching crude oil investments, I found that retail investors actually have quite a few ways to participate in this market, but many people are still a bit unclear about the differences among these methods. Today, I’d like to talk about crude oil ETFs as an investment tool, and the oil stocks behind them that are worth paying attention to.

First, let’s talk about crude oil ETFs. This product didn’t appear until 2005, when the global economy was undergoing a strong recovery. Its cleverness lies in the fact that it does not directly hold physical crude oil; instead, it tracks crude oil price trends through financial derivatives such as futures, forwards, and swaps. In other words, you can buy and sell it on an exchange just like a stock, but in reality you are investing indirectly in the crude oil market.

When it comes to specific products, the options in the Taiwan market are actually limited. Yuanta’s S&P Oil ETF (code 00642U) is the only one directly related to crude oil. It tracks the S&P Goldman Sachs Crude Oil Index, with a correlation to spot prices as high as 0.923. There’s also Jkoop Brent Oil Bull 2 (00715L), a leveraged product that provides 2x positive performance, suitable for investors who have a clear view of market direction. In the US market, there are more choices. For example, MLPX tracks oil and natural gas pipeline companies; IXC and XLE track large global energy stocks. Behind these underlying assets are industry leaders such as ExxonMobil, Chevron, and ConocoPhillips.

However, crude oil ETFs are only one way to enter. Crude oil futures have the largest trading volume, but the barrier to entry is high and they aren’t very suitable for retail investors. Investing in crude oil stocks requires more in-depth research—you need to look not only at oil price movements, but also at a company’s production potential, financial condition, and competitive landscape. Major oil stocks include China Petroleum & Chemical Corporation (China Petrochemical, Sinopec), ExxonMobil, Royal Dutch Shell, BP, and Total, and each has its own characteristics. If you want more flexibility in trading, options and CFDs are also choices, but the risks rise accordingly.

Compared with that, the advantages of crude oil ETFs are still quite clear. First, they’re easy to operate: you don’t need to open a separate futures account—you can trade them just like stocks. Second, liquidity is relatively solid, allowing for frequent intraday trading so you can capture short-term opportunities. Management fees are typically around 0.3%-0.4%, which can save a lot of cost compared with futures and stock investments. They also support two-way trading, so you can go long or short. Most importantly, the risk of liquidation is relatively lower, and the investment threshold is also not high.

Of course, risks must also be considered. Crude oil prices are extremely volatile; during the pandemic, negative oil prices even occurred. Some ETFs that track shale gas companies: these companies tend to be relatively weaker in competitiveness, and in a low oil price environment they are more likely to run into problems. In addition, ETFs that track futures come with rollover costs, and holding them long term can increase losses. For investors without experience, the risks are indeed higher.

In terms of hands-on practice, you can use an inverse ETF to hedge risk, or combine multiple ETFs to diversify your investment. But inverse ETFs themselves carry extremely high risk—if oil prices rebound, losses could be severe. Therefore, no matter which method you choose, setting take-profit and stop-loss levels is a must. Choose products issued by large institutions with strong capabilities, because their research frameworks are more comprehensive; they are also more sensitive at capturing market pricing.

In summary, crude oil ETFs are suitable for investors who want to participate in this market but do not want to take on excessively high risk. But the prerequisite is that you understand what you are investing in, including the underlying oil stocks and market dynamics, rather than blindly following the trend.