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More Rally in Oil ETFs in the Cards This Week?

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Oil prices have soared to their highest levels in many years due to geopolitical tensions in Europe and the Middle East. The demand recovery after the peak of pandemic is also aiding the oil rally. A dozen ballistic missiles launched from outside Iraq struck the country’s northern Kurdish regional capital Irbil on Sunday, as quoted on CNBC. Iran’s Revolutionary Guards later held themselves responsible for the attack, which also targeted the U.S. consulate’s new building.

The missile attack following talks to revive the 2015 Iran nuclear deal are on the verge of collapsing after a last-minute Russian demand forced world powers to pause negotiations for an indefinite period despite an almost completed text.

Apart from the Middle-East tensions, oil price has been rallying on the Russia-Ukraine war. Russia is energy-rich. And Europe is highly dependent on that country for energy, importing about 40% of its energy requirement. Russia is also the provider of about 35% of Europe’s gas. Hence, the latest Russia-Ukraine tensions have led to uncertainty in the energy market supply chain and sent the commodities into soaring.

Oil breached $100 for the first time since 2014. United States Brent Oil Fund, LP (BNO - Free Report) has gained 21.2% past month amid heightened tensions in East Europe. In any case, oil prices have been rising since the beginning of 2022 on a demand recovery and less OPEC+ output.

Material uptick in output is tough at present. U.S producers expect to keep oil production flat this year as output cannot be ramped up instantly amid soaring crude prices, said Occidental Petroleum (OXY) CEO Vicki Hollub, as quoted on CNBC. Aging wells, labor shortages and higher raw material prices because of supply chain issues have been posing as threats. Though UAE said that it wanted OPEC to increase production, the move will not be very easy.

In the peak of the pandemic, most oil companies went for capex cuts due to lackluster demand. Now, the sudden jump in demand thanks to the better COVID-19 management and geopolitical crisis in East Europe and Middle East may not enable companies to take advantage fully by increasing production very fast. This, in turn, would push up oil prices (read: Buy Clean Energy ETFs on Beaten-Down Prices).

Against this backdrop, below we highlight a few oil ETFs that could be tapped for gains in the near term.

ETFs in Focus  

iPath Pure Beta Crude Oil ETN (OIL - Free Report) – Up 15.6% Past Month

United States Oil Fund LP (USO - Free Report) – Up 15.4% Past Month

ProShares K-1 Free Crude Oil Strategy ETF (OILK - Free Report) – Up 14.3% Past Month

United States 12 Month Oil Fund LP (USL - Free Report) – Up 12.3% Past Month

Invesco DB Oil Fund (DBO - Free Report) – Up 7.7% Past Month