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ETFs to Gain as Oil Rallies on Upbeat Demand Outlook
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Oil prices rose 40% this year amid improving economic conditions globally. Notably, the pandemic seems to be gradually coming under control in the United States, China and some parts of Europe amid an accelerated coronavirus vaccination drive. The economic recovery from the pandemic-led slump is expected to keep driving fuel consumption, thus supporting the rally in oil prices.
According to the International Energy Agency (IEA), the global fuel demand may rebound to the pre-pandemic levels in a year, per a Bloomberg article. In this regard, IEA Executive Director Fatih Birol has commented that “Demand in one year or so may well come back to the levels of before the crisis,” per the same Bloomberg article.
The Organization of the Petroleum Exporting Countries and its production allies, together known as OPEC+, has added to the optimism in oil demand. It expects demand to rise on global economic recovery. Accordingly, the group has decided to raise production by 841,000 barrels per day (bpd) in July after increases in May and June, per a Bloomberg article. Resultantly, oil prices saw continued gains and rose to the highest level since October 2018.
Notably, OPEC+ continues to project a 6 million bpd rise in oil demand in 2021, per a Reuters article. The figure is equal to 6% of global consumption amid the economic recovery from the pandemic. It is important to note that OPEC+ had curbed oil production by a record of 9.7 million bpd last year amid the aggravating pandemic conditions waning oil demand, according to a CNBC article. Later, the cuts were revised to 7.7 million and finally 7.2 million from January 2021.
Meanwhile, OPEC+ decided in April to bring back 2.1 million bpd of supply to the market during May through July considering improving demand outlook, per a Reuters article.The group’s production cuts are expected to come about at 5.8 million by July, per the same CNBC article.
In this regard, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman commented that "The vaccine rollout has gathered pace with around 1.8 billion vaccines administered around the world ... This can only lead to further rebalancing of the global oil market," per a Reuters article.
Going on, the prospects of a rapid return of Iranian barrels to the market have decreased. Iran is holding talks with Western powers to restore its 2015 nuclear deal, per a CNBC article. If successful, this can lead to increased oil supplies in global markets. In fact, Iran is expected to increase production and exports by between 1.0 and 1.5 million bpd on complete easing of sanctions, according to a Reuters article.
In this regard, OPEC Secretary General Mohammad Barkindo said that "We anticipate that the expected return of Iranian production and exports to the global market will occur in an orderly and transparent fashion," per a Reuters article.
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: How Will Oil Service ETFs Fare This Earnings Season?).
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: ETFs to Ride the Oil Rally on Lower Supply & Dovish Fed).
Image: Bigstock
ETFs to Gain as Oil Rallies on Upbeat Demand Outlook
Oil prices rose 40% this year amid improving economic conditions globally. Notably, the pandemic seems to be gradually coming under control in the United States, China and some parts of Europe amid an accelerated coronavirus vaccination drive. The economic recovery from the pandemic-led slump is expected to keep driving fuel consumption, thus supporting the rally in oil prices.
According to the International Energy Agency (IEA), the global fuel demand may rebound to the pre-pandemic levels in a year, per a Bloomberg article. In this regard, IEA Executive Director Fatih Birol has commented that “Demand in one year or so may well come back to the levels of before the crisis,” per the same Bloomberg article.
The Organization of the Petroleum Exporting Countries and its production allies, together known as OPEC+, has added to the optimism in oil demand. It expects demand to rise on global economic recovery. Accordingly, the group has decided to raise production by 841,000 barrels per day (bpd) in July after increases in May and June, per a Bloomberg article. Resultantly, oil prices saw continued gains and rose to the highest level since October 2018.
Notably, OPEC+ continues to project a 6 million bpd rise in oil demand in 2021, per a Reuters article. The figure is equal to 6% of global consumption amid the economic recovery from the pandemic. It is important to note that OPEC+ had curbed oil production by a record of 9.7 million bpd last year amid the aggravating pandemic conditions waning oil demand, according to a CNBC article. Later, the cuts were revised to 7.7 million and finally 7.2 million from January 2021.
Meanwhile, OPEC+ decided in April to bring back 2.1 million bpd of supply to the market during May through July considering improving demand outlook, per a Reuters article.The group’s production cuts are expected to come about at 5.8 million by July, per the same CNBC article.
In this regard, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman commented that "The vaccine rollout has gathered pace with around 1.8 billion vaccines administered around the world ... This can only lead to further rebalancing of the global oil market," per a Reuters article.
Going on, the prospects of a rapid return of Iranian barrels to the market have decreased. Iran is holding talks with Western powers to restore its 2015 nuclear deal, per a CNBC article. If successful, this can lead to increased oil supplies in global markets. In fact, Iran is expected to increase production and exports by between 1.0 and 1.5 million bpd on complete easing of sanctions, according to a Reuters article.
In this regard, OPEC Secretary General Mohammad Barkindo said that "We anticipate that the expected return of Iranian production and exports to the global market will occur in an orderly and transparent fashion," per a Reuters article.
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: How Will Oil Service ETFs Fare This Earnings Season?).
AUM: $3.11 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: ETFs to Ride the Oil Rally on Lower Supply & Dovish Fed).
AUM: $505 million
Total Expense Ratio: 0.78%
United States Brent Oil Fund (BNO - Free Report)
The fund tracks the daily price movement of Brent crude oil (read: ETFs to Win/Lose on Suez Canal Blockage).
AUM: $320.7 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: $197.9 million
Total Expense Ratio: 0.88%
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