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Oil ETFs for This Year's Rally

Stocks in this article: USO IEZ XLE XOM SLB CVX

NEW YORK ( TheStreet) -- Earlier in the year, political turmoil in the Middle East helped propel a rally in oil prices that many investors thought would end once the possibility of supply disruptions at the Suez Canal was removed from the market's focus.

But markets have held these elevated levels in oil prices into the second half of the year, as a dovish stance at the Federal Reserve puts downside pressure on the dollar and the Chinese government pledges a commitment to meeting its yearly growth target of 7%. These supportive elements in the world's first and second largest oil-consuming nations should keep prices elevated into the end of the year.

But although West Texas Intermediate (WTI) crude has seen price gains of more than 25% in the last three years, ETFs that track related assets have not fared nearly as well. For investors looking for ways to gain exposure to these rallies, ETFs offer some attractive options. Here, we will look at three of the best choices.

The United States Oil Fund (USO) is the largest crude-based ETF, with nearly $850 million in assets under management. The fund's value moves with the daily fluctuations in WTI prices and charges a management expense ratio of 0.45%.

This makes USO an excellent option for those looking to gain exposure to oil (or to hedge portfolios). The fund's main holdings include short-term contracts of WTI crude oil in the IntercontinentalExchange and NYMEX markets. The fund's portfolio reflects daily changes in Net Asset Value (NAV) over the prior 30-day period, at 10% +/- of the average daily price fluctuation of the benchmark. For bullish oil investors looking for a well-managed fund with a strong record of stability, USO offers a solid option in playing this year's oil rally.

Next, we look at the iShares US Oil Equipment & Services ETF (IEZ), which is more closely based on the performance of individual companies in the sector. The fund's largest holding is Schlumberger (SLB), which makes up nearly 22% of its total exposure.

Schlumberger is the largest oil-services provider in the world, and its latest earnings report showed strong second-quarter earnings at $1.15 per share (excluding items).

Total revenue rose by more than 8%, coming in at $11.18 billion from year-ago levels -- propelled largely by its cohesive international exposure.

Schlumberger has beaten market estimates in four of the last five quarters (by a large margin), and holdings like this will help support the prospects for IEZ going forward.

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