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Should You Invest in ETFs Tracking the Latest Oil Rally?
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Oil prices have surpassed the $80-a-barrel mark amid the ongoing global power crisis. The price of crude has reached a seven-year high level. Notably, shrinking crude inventories, supply disruption in the Gulf of Mexico following a couple of hurricanes and surging fuel demand have been pushing oil prices higher. Going on, soaring coal and natural gas prices in Europe and Asia due to a supply-demand imbalance before the severe winter season is driving consumption of diesel and kerosene (according to a Bloomberg article).
The American crude benchmark has surged about 30% since mid-August due to the worsening energy crisis. As mentioned in a Bloomberg article, Saudi Aramco believes that there has been a rise in oil demand by around 500,000 barrels/day due to the limited gas supply.
Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) and a Russia-led group of oil producers, collectively called OPEC+, have decided to raise production by 400,000 barrels a day each month. Notably, the group has decided to adhere to its previously agreed plan of slowly returning production to pre-pandemic levels. Market pundits were estimating higher production rise from OPEC+ considering the oil price’s consistent rise.
Commenting on the market condition, Daniel Hynes, a senior commodity strategist at Australia & New Zealand Banking Group Ltd, has said that “OPEC’s decision to hold back from a bigger than scheduled increase in output is likely to see the market tighten further in the fourth quarter,” per a Bloomberg article.
The coronavirus vaccine rollout is gradually helping control the spread of the outbreak across the globe. The optimism surrounding the gradual reopening of global economies and increasing demand is painting a rosy picture for cyclical sectors.
The progress in coronavirus vaccine rollout presents a strong case,favoring a faster return to normalcy and economic recovery. The FDA has approved the emergency use of a booster dose of the Pfizer Inc. (PFE) and BioNTech SE (BNTX) COVID-19 vaccine. President Joe Biden has also outlined an effective plan to accelerate the vaccination rate and control the coronavirus outbreak. He has made it mandatory for federal employees to get COVID-19 vaccination, per a CNBC article.
In another positive development, the optimism surrounding the news highlighting positive updates on Merck (MRK) and Ridgeback Biotherapeutics’ investigational oral antiviral medicine, molnupiravir, can support the sector. The update supports the spaces expected to gain from the reopening of economies as molnupiravir will help fight against COVID-19 if approved by the FDA.
Oil ETFs That Might Gain
Against this backdrop, investors can take a closer look at the oil commodity space and its related ETFs (see all Energy ETFs here).
The United States Oil Fund’s investment objective is for the daily changes, in percentage terms, of its shares’ net asset value (NAV) to reflect the daily changes, in percentage terms, of the spot price of light sweet crude oil delivered to Cushing, OK, as measured by the daily changes in the Benchmark Oil Futures Contract (read: ETF Asset Report of September).
The fund tracks changes, whether positive or negative, in the level of the DBIQ Optimum Yield Crude Oil Index Excess Return plus the interest income from the holdings of primarily U.S. Treasury securities and money-market income-less expenses (read: Tough Time for Energy ETFs on Oversupply Concerns?).
Image: Bigstock
Should You Invest in ETFs Tracking the Latest Oil Rally?
Oil prices have surpassed the $80-a-barrel mark amid the ongoing global power crisis. The price of crude has reached a seven-year high level. Notably, shrinking crude inventories, supply disruption in the Gulf of Mexico following a couple of hurricanes and surging fuel demand have been pushing oil prices higher. Going on, soaring coal and natural gas prices in Europe and Asia due to a supply-demand imbalance before the severe winter season is driving consumption of diesel and kerosene (according to a Bloomberg article).
The American crude benchmark has surged about 30% since mid-August due to the worsening energy crisis. As mentioned in a Bloomberg article, Saudi Aramco believes that there has been a rise in oil demand by around 500,000 barrels/day due to the limited gas supply.
Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) and a Russia-led group of oil producers, collectively called OPEC+, have decided to raise production by 400,000 barrels a day each month. Notably, the group has decided to adhere to its previously agreed plan of slowly returning production to pre-pandemic levels. Market pundits were estimating higher production rise from OPEC+ considering the oil price’s consistent rise.
Commenting on the market condition, Daniel Hynes, a senior commodity strategist at Australia & New Zealand Banking Group Ltd, has said that “OPEC’s decision to hold back from a bigger than scheduled increase in output is likely to see the market tighten further in the fourth quarter,” per a Bloomberg article.
The coronavirus vaccine rollout is gradually helping control the spread of the outbreak across the globe. The optimism surrounding the gradual reopening of global economies and increasing demand is painting a rosy picture for cyclical sectors.
The progress in coronavirus vaccine rollout presents a strong case,favoring a faster return to normalcy and economic recovery. The FDA has approved the emergency use of a booster dose of the Pfizer Inc. (PFE) and BioNTech SE (BNTX) COVID-19 vaccine. President Joe Biden has also outlined an effective plan to accelerate the vaccination rate and control the coronavirus outbreak. He has made it mandatory for federal employees to get COVID-19 vaccination, per a CNBC article.
In another positive development, the optimism surrounding the news highlighting positive updates on Merck (MRK) and Ridgeback Biotherapeutics’ investigational oral antiviral medicine, molnupiravir, can support the sector. The update supports the spaces expected to gain from the reopening of economies as molnupiravir will help fight against COVID-19 if approved by the FDA.
Oil ETFs That Might Gain
Against this backdrop, investors can take a closer look at the oil commodity space and its related ETFs (see all Energy ETFs here).
United States Oil Fund (USO - Free Report)
The United States Oil Fund’s investment objective is for the daily changes, in percentage terms, of its shares’ net asset value (NAV) to reflect the daily changes, in percentage terms, of the spot price of light sweet crude oil delivered to Cushing, OK, as measured by the daily changes in the Benchmark Oil Futures Contract (read: ETF Asset Report of September).
AUM: $2.63 billion
Total Expense Ratio: 0.83%
Invesco DB Oil Fund (DBO - Free Report)
The fund tracks changes, whether positive or negative, in the level of the DBIQ Optimum Yield Crude Oil Index Excess Return plus the interest income from the holdings of primarily U.S. Treasury securities and money-market income-less expenses (read: Tough Time for Energy ETFs on Oversupply Concerns?).
AUM: $461.6 million
Total Expense Ratio: 0.77%
United States Brent Oil Fund (BNO - Free Report)
The fund tracks the daily price movement of Brent crude oil (read: 5 Winning Global ETFs of First Nine Months of 2021).
AUM: $247 million
Total Expense Ratio: 1.13%
United States 12 Month Oil Fund (USL - Free Report)
The fund replicates with possible accuracy the price movements of West Texas Intermediate light, sweet crude oil.
AUM: $152.6 million
Total Expense Ratio: 0.88%