Your Guide to Trading Oil ETFs

Two days before Christmas, the West Texas Intermediate crude oil (benchmark for New York Mercantile Exchange futures contracts) spot price bottomed at $30 per barrel and traded below the price of international crude oils -- whereas historically it had traded slightly above -- due to a lack of inventory at the Cushing, Okla., delivery point.

The pricing anomaly exacerbated the problem of contango -- when the next month's futures contract costs more than the current month. The episode highlighted in extreme form some of the differences among various ETFs, ETNs and ETPs that track the price of crude oil.

As of yet, there is no ETF that models the gold and silver ETFs by accumulating and storing oil. Instead, a mix of products offers unique ways of investing in the world's most important fuel through futures contracts.

The major differences, aside from the ETF and ETN distinction (with their attendant tax and credit-risk drawbacks), are timing and how the underlying index deals with contango and its opposite -- backwardization. U.S. Oil(USO Quote), for instance, rolls contracts each month, while PowerShares DB Oil(DBO Quote) follows the Deutsche Bank(DB Quote)Optimum Yield Index that opts for the best contract to minimize contango or maximize backwardization.

There's also another product offered by MacroShares: $100 Oil Up(UOY Quote) and $100 Oil Down(DOY Quote). MacroShares are sold in pairs -- for every long oil share, there is a short oil share. All the money is placed into Treasuries and cash.

When the price of oil rises, MacroShares shifts money into the up shares, and when the price drops, money shifts to the down shares. The shares have expiration dates but may also terminate early if certain conditions are met. A previous iteration terminated last year, and these shares are set to terminate in June. Investors may have the opportunity to invest in another set of these shares, but judging by the volume, the concept is not popular with investors.