Buying Energy ETFs on Pullback (USO, XLE, FRAK)


The price of oil has fallen about $10 per barrel over the last month as the tensions in Syria and around the world have subsided. Within the last week, the price of the commodity fell even further due to the government shutdown and fears of a potential ripple affect through the global economy.

On Friday, the price of oil is once again rising due to Tropical Storm Karen is expected to turn into a hurricane in the Gulf of Mexico. There is a possibility the storm could shut down production for a couple of days.

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Investors need to look at the situation from both a short-term and long-term view. In the short-term, there is the hurricane, government shutdown and little news out of Syria. All three could change dramatically at any point in the coming days. The hurricane will obviously pass, the government could come to an agreement and Syria is like a tinderbox ready to go up in flames.

The longer-term outlook for oil prices is based on supply/demand. If the global economy continues to expand at the current pace, it will lead to a higher demand for oil and the question will be if supply can keep up with the pace? Then we must sprinkle in unknown short-term factors such as the three mentioned above.

In the end, it is not an easy commodity to invest in due to multiple factors. However, there is a strategy that involves using the energy ETFs and buying for the long-term when short-term factors create opportunities. The government shutdown and the calm in Syria and the Middle East at this time have oil down and the United States Oil Fund (NYSE:USO) sitting on support. If USO can hold above the $36 level, it could be setting up for a bounce as soon as the government shutdown is resolved.

Other energy ETFs to consider buying on pullbacks to support are the SPDR Select Sector Energy ETF (NYSE:XLE) andMarket Vectors Unconventional Oil and Gas ETF (NYSE:FRAK).

All three ETFs mentioned are very different in composition, but all three should perform well if oil is able to continue its long-term trend higher in the very near future.

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