Best Way to Short Oil

The PowerShares DB Oil Fund (DBO Quote) is also a commodity pool holding futures contracts, although it doesn't necessarily hold the front-month contract. It tracks the oil component of the PowerShares DB Commodity Index, which holds whichever futures contracts have the biggest implied yield during the next 13 months.

This strategy is intended to offset some of the negative effects that can be experience by rolling the futures contract every month, such as contango. DB Oil has the same tax structure as the U.S. Oil Fund.

The iPath S&P GSCI Crude Oil Total Return Index (OIL Quote) is an exchange-traded note that doesn't hold futures or commodities. It is an unsecured debt security issued by Barclay's Bank, a unit of Barclays Plc(BCS Quote). Investors don't own anything except Barclays' promise to provide the exact return as the index, minus its 0.75% management fee.

That means you're taking on the risk that Barclays has a solid balance sheet.

The big benefit to owning OIL is that it has the best tax structure of the bunch. Not only are there no capital gains or income distributions requiring annual taxes, but if held longer than a year, all gains and distributions are taxed as long-term capital gains. However, the Internal Revenue Service hasn't made a final ruling on this tax structure, so it could possibly change.

Comparing the ETFs, this year since its Jan. 8 launch, DB Oil has gained 40.9% compared with a surge of 53.3% in OIL and 53.2% in USO. The MacroShares Up Trust trailed the pack with an increase of just 25.7%.

Of course, betting on short-term trends in commodities prices is a risky business, no matter how you do it. This asset class should only comprise a small part of your portfolio. Matt King, a portfolio manager at Bell Investment Advisors, a manager of $540 million in Oakland, Calif., recommends between 5% and 15% in commodities, with 10% being a reasonable amount. However, he recommends investors buy a commodity index instead of just one or two single commodity funds.

He likes the PowerShares DB Commodity Index Tracking Fund (DBC Quote) and the iPath Dow Jones-AIG Commodity Index Total Return ETN(DJP Quote), because they are both well diversified. But investors who want more exposure to oil might want to consider the iPath S&P GSCI Total Return Index(GSP Quote). It tracks five industries, but 70% of the index is in energy.