BetaShares launches first ASX-listed oil ETF

Nov 22nd, 2011 | By | Category: Commodities

BetaShares has announced the launch of the first oil ETF on the Australian Securities Exchange.

BetaShares launches Australia’s first oil ETF

Emerging market demand, plunging inventory levels, and lingering political uncertainty in the Middle East are driving oil prices higher.

The ETF aims to replicate the performance of the S&P GSCI Crude Oil Index, which tracks the performance of West Texas Intermediate (WTI) crude oil futures traded on the New York Mercantile Exchange.

Drew Corbett, Head of Investment Strategy at BetaShares, commented:

“While ETF product choice for Australian investors continues to grow, exposure to commodities such as oil has been limited. Up until now, the only way to gain access was via complicated instruments such as futures or CFDs, or indirectly via shares in oil companies”.

The BetaShares Crude Oil Index ETF is currency hedged, substantially eliminating the impact of movements in the AUD/USD exchange rate to provide domestic investors with a more focused oil exposure.

Crude oil is one of the most important physical commodities in the global economy and is the most commonly traded commodity globally.

“Recent strength in global oil markets has seen WTI crude rally more than 6% since the start of the month, building on gains in October.  The catalyst for rising prices has been strong emerging market demand combined with plunging inventory levels in the US and other markets.  In addition, the lingering political uncertainty in the Middle East represents a constant potential constraint to supply” said Corbett.

For investors looking to take positions, ETFs provide one of the best and simplest ways to gain exposure to movements in oil prices.

“Unlike investing in the shares of oil companies, the ETF is a way for investors to gain direct exposure to the oil market without taking on extraneous risks, such as company-specific production and exploration risks, financial and management risks and the impact of earnings surprises or analyst upgrades and downgrades on share prices”, said Corbett.

Physically storing oil would involve significant storage and handling costs for investors, rendering it impractical and costly. As a result, the ETF invests all of its assets into cash and obtains exposure to the oil price via a swap agreement.

“While the new ETF is therefore classified as a “synthetic” ETF, investors should be aware the product is fully backed by cash, which is ring-fenced and held by a third party custodian for the benefit of investors,” Corbett concluded.

UK and Europe-based investors can gain exposure to oil via the following exchange traded products:

ETCs

Source Crude Oil Enhanced T-ETC

Source Crude Oil T-ETC

ETFS Crude Oil ETC

ETFS Brent 1yr ETC

ETFS WTI 1yr ETC

ETNs

UBS ETRACS Oil Futures Contango ETN

Barclays iPath Pure Beta Crude Oil ETN

Barclays iPath S&P GSCI® Crude Oil Total Return Index ETN 

ETFs (oil/energy sector companies)

iShares S&P Commodity Producers Oil and Gas ETF

SPDR MSCI Europe Energy ETF

Amundi MSCI Europe Energy ETF

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