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Oil prices increased considerably on Oct 5 as OPEC+ producers agreed deep output cuts, seeking to spur a recovery in crude prices despite repeated calls from U.S. President Joe Biden’s administration for the group to pump more to lower fuel prices and contain global inflation.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, decided to cut production targets by about two million barrels per day from November. Energy analysts had mostly expected the group to cut output in the range of 500,000 barrels and two million barrels, as quoted on CNBC.
United States Oil Fund, LP (USO - Free Report) added 2.4% on the OPEC+ decision while United States Brent Oil Fund, LP (BNO - Free Report) added 2.11%. Oil prices have declined around 30% since early June after reaching multi-year highs in March. The fall has been triggered by growing concerns that global (including the United States) interest rate hikes and Covid-related restrictions in parts of China could slow global economic growth and curtail oil demand. The output cut for November is targeted at reversing this decline.
Notably, the Fed rate hikes have resulted in a higher U.S. dollar. Since most commodities are traded in the U.S. dollar, a rise in it is a headwind to oil prices. Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) is up 5.5% in the past three months.
Many analysts believe that OPEC+ wants to see oil prices at $100-level. And oil prices might rally back to that level, given no major COVID-19 outbreak globally and a decent price of greenback. However, occasional lockdowns in China (a major energy user) and continued recession fears might weigh on oil prices occasionally.
Against this backdrop, below we highlight a few oil ETFs that could be tapped for short-term gains.
ETFs in Focus
iPath Pure Beta Crude Oil ETN
The underlying S&P GSCI Crude Oil Total Return Index is a sub-index of the S&P GSCI Commodity Index and reflects the returns that are potentially available through an unleveraged investment in the WTI crude oil futures contract. The ETN charges 57 bps in fees.
United States 12 Month Oil Fund LP (USL)
The underlying WTI Light Sweet Crude Oil Index reflects the daily changes of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma. This is done by tracking the changes in the average of the prices of the 12 futures contracts for WTI oil on the NYMEX, consisting of the near month and the contracts for the following 11 months for a total of 12 consecutive contracts. The fund charges 90 bps in fees.
The underlying Bloomberg Commodity Balanced WTI Crude Oil Index aims to track the performance of three separate contract schedules for WTI crude oil futures, which are reset on a semiannual basis. The fund charges 67 bps in fees.
The underlying DBIQ Optimum Yield Crude Oil Excess Return Index is a rules-based index composed of futures contracts on Light Sweet Crude Oil (WTI) and is intended to reflect the performance of crude oil. The fund charges 77 bps in fees.
The underlying West Texas Intermediate Light Sweet Crude Oil Index looks to reflect the daily changes of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma. The fund charges 81 bps in fees.
The underlying MicroSectors Oil & Gas Exploration & Production Index is a total return index that tracks the stock prices of large-capitalization companies that are domiciled and listed in the U.S. and that are active in the exploration and production of oil and gas. The fund charges 95 bps in fees.
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Oil ETFs Up on Steep OPEC+ Output Cuts
Oil prices increased considerably on Oct 5 as OPEC+ producers agreed deep output cuts, seeking to spur a recovery in crude prices despite repeated calls from U.S. President Joe Biden’s administration for the group to pump more to lower fuel prices and contain global inflation.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, decided to cut production targets by about two million barrels per day from November. Energy analysts had mostly expected the group to cut output in the range of 500,000 barrels and two million barrels, as quoted on CNBC.
United States Oil Fund, LP (USO - Free Report) added 2.4% on the OPEC+ decision while United States Brent Oil Fund, LP (BNO - Free Report) added 2.11%. Oil prices have declined around 30% since early June after reaching multi-year highs in March. The fall has been triggered by growing concerns that global (including the United States) interest rate hikes and Covid-related restrictions in parts of China could slow global economic growth and curtail oil demand. The output cut for November is targeted at reversing this decline.
Notably, the Fed rate hikes have resulted in a higher U.S. dollar. Since most commodities are traded in the U.S. dollar, a rise in it is a headwind to oil prices. Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) is up 5.5% in the past three months.
Many analysts believe that OPEC+ wants to see oil prices at $100-level. And oil prices might rally back to that level, given no major COVID-19 outbreak globally and a decent price of greenback. However, occasional lockdowns in China (a major energy user) and continued recession fears might weigh on oil prices occasionally.
Against this backdrop, below we highlight a few oil ETFs that could be tapped for short-term gains.
ETFs in Focus
iPath Pure Beta Crude Oil ETN
The underlying S&P GSCI Crude Oil Total Return Index is a sub-index of the S&P GSCI Commodity Index and reflects the returns that are potentially available through an unleveraged investment in the WTI crude oil futures contract. The ETN charges 57 bps in fees.
United States 12 Month Oil Fund LP (USL)
The underlying WTI Light Sweet Crude Oil Index reflects the daily changes of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma. This is done by tracking the changes in the average of the prices of the 12 futures contracts for WTI oil on the NYMEX, consisting of the near month and the contracts for the following 11 months for a total of 12 consecutive contracts. The fund charges 90 bps in fees.
ProShares K-1 Free Crude Oil Strategy ETF (OILK - Free Report)
The underlying Bloomberg Commodity Balanced WTI Crude Oil Index aims to track the performance of three separate contract schedules for WTI crude oil futures, which are reset on a semiannual basis. The fund charges 67 bps in fees.
Invesco DB Oil Fund (DBO - Free Report)
The underlying DBIQ Optimum Yield Crude Oil Excess Return Index is a rules-based index composed of futures contracts on Light Sweet Crude Oil (WTI) and is intended to reflect the performance of crude oil. The fund charges 77 bps in fees.
United States Oil Fund LP (USO - Free Report)
The underlying West Texas Intermediate Light Sweet Crude Oil Index looks to reflect the daily changes of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma. The fund charges 81 bps in fees.
MicroSectors Oil & Gas Exp. & Prod. 3x Leveraged ETN (OILU - Free Report)
The underlying MicroSectors Oil & Gas Exploration & Production Index is a total return index that tracks the stock prices of large-capitalization companies that are domiciled and listed in the U.S. and that are active in the exploration and production of oil and gas. The fund charges 95 bps in fees.