Zacks Equity Research — ZACKS — Wed Feb 18, 11:27AM CST

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A respite to the oil price decline has long been due as the commodity has been on a wild ride over the past seven months, having depleted about 60% in price.  Increased production resulting in ample supplies, strength in the greenback, slower manufacturing activities in Europe which is buckling under deflationary pressure, cooling geo-political tension in the second half of the year, and sluggish Chinese and Japanese economies pushed oil prices down last year (read: Oil ETFs Crash As Crude Touches Multi-Year Low ).

After closing out 2014 on a grave note, there was no celebration for oil in the New Year either. WTI crude prices dipped below $50 on a no-production cut call by OPEC. However, when all hopes on an oil price rebound seemed to be lost and some analysts even went on forecasting the price to fall as low as $30/ barrel, the momentum snapped the trend to enter February (read: Top Performing ETFs of 2014 and 3 Great Picks for Next Year ).

Steep spending cuts by big U.S. oil drillers like BP Plc. (BP ) and Exxon Mobil Corp. (XOM ) and a fall in U.S. dollar had driven up oil prices. In fact, in early February, crude saw the strongest two-week gain in 17 years. To add more cheer, oil prices got another boost in the form of Egypt’s airstrikes on Libya, which is a key oil-exporting nation.

The price of the global benchmark Brent crude oil added about 6% in two days, touching as high as $62.50 per barrel at the close of February 16. U.S. benchmark WTI crude also returned about 5% to reach above $53 in these two days.

How to Play?

Given this situation, investors may want to consider a closer look at oil investments. While investing in oil futures is certainly an option, investors can also tap into this trend by purchasing ETFs that have exposure to oil futures. The following ETFs should thus be closely watched if oil price holds above $50 in the near term (see all Energy ETFs here):

This is the most popular and liquid ETF in the oil space with AUM of over $1.13 billion and average daily volume of over 27 million shares. The fund seeks to match the performance of the spot price of light sweet crude oil West Texas Intermediate.

As the fund provides exposure to front-month oil futures, the product needs to roll from one futures contract to the next, producing a roll yield situation. If the front-month contract is higher than the next-month contract (also called backwardation), the roll yield is positive. But the opposite situation leads to contango which is a negative for investors.

The ETF has a 0.45% expense ratio, and has gained 11% in the last one month (as of February 17, 2015).

This ETF also gives investors exposure to crude oil, and sees solid assets under management at about $471.6 million. The product tracks the movements of West Texas Intermediate (WTI) light, sweet crude oil. It charges an expense ratio of 75 bps. DBO gained 11.9% in the last one month (as of February 17, 2015).

This is an ETN option for oil investors, tracking a spot price benchmark of WTI crude. So far, it has garnered $736.4 million in assets. The product charges 75 bps in fees. This ETN was up roughly 15.5%% in the last one month (see ETFs vs. ETNs: What’s The Difference? ).

Bottom Line

Despite this way up, oil is a tremendously valiant play as of now. Industry experts are divided in two groups with the one hoping for a sustained recovery and the other considering the recent surge as ‘overblown’.

Oil minister of Kuwait (an OPEC country) earlier expected oil prices to bounce back in the second half of 2015 and remains hopeful on the continuation of the ascent. On the other hand, as per BNP Paribas. “improvement in (U.S.) WTI front month (crude oil) price may be premature, given the existing crude stock overhang”.

Going forward, geopolitical tensions and efforts to boost global economic recovery including the easy policies in China, turnaround in Japan and a QE roll-out in the Euro zone should drive the oil price rebound. If this happens, the broader energy sector which is presently on sale should set for a remarkable upward journey.

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