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Oil ETFs to Rally on EU's Latest Ban on Russian Crude Imports
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Oil prices have been surging amid the Russia-Ukraine geopolitical crisis. The European Union leaders finally agreed on an embargo to restrict 90% of Russian crude by the end of 2022. The sanctions will immediately impose a ban on 75% of the Russian oil imports.
The U.S. crude futures for July increased 3.8% to $119.39 per barrel during Asia hours on May 31 (per a CNBC article). Also, the global benchmark Brent crude oil has risen 1.9% to $124.02 per barrel on the same day.
According to the statement issued by the European Council on May 31, “The European Council agrees that the sixth package of sanctions against Russia will cover crude oil, as well as petroleum products, delivered from Russia into Member States, with a temporary exception for crude oil delivered by pipeline.” This was reported in a CNBC article. Per the same article, this ban will be part of the sixth sanction package imposed by the European Union in response to Russia’s attack on Ukraine.
The European Commission president Ursula von der Leyen informed that the temporary exemption was granted to make sure that the countries like Hungary, Slovakia and the Czech Republic, which are connected to the southern side of the pipeline where it is difficult to arrange a replacement, get access to oil (per a CNBC article).
Increasing Demand in U.S and China
The EU’s oil embargo can induce a sharp rally in oil prices to increase the burden on the already tight oil supplies. U.S. gasoline demand is also soon going to shoot up as the Memorial Day weekend marks the beginning of the U.S. summer driving season. According to SPI Asset Management managing partner Stephen Innes, "Oil prices are supported as gasoline markets remain tight amid solid demand heading into the peak U.S. driving season. Refineries are typically in ramp-up mode to feed U.S. drivers' unquenching thirst at the pump," as mentioned in a Reuters article.
It is also worth noting here that Russia stands as the world’s second-largest oil producer. European refineries procure most of their crude oil supplies from Russia. Notably, the country also provides about two-fifths of its natural gas supply to Europe. In fact, it emerged as the largest natural gas and oil supplier to the European Union in 2021.
The end of a two-month-long COVID-19 lockdown in China’s biggest financial hub, Shanghai, will also bump up oil demand only to worsen the already tight supply-demand conditions in the oil market.
The Organization of the Petroleum Exporting Countries and allies including Russia, popularly known as OPEC+, is unable to support the asymmetrical supply-demand in the crude oil market by adhering to its original plan of an increase of 432,000 barrels a day for July, per a Reuters article.
Oil ETFs That Can Rally
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 Brent Oil Fund (BNO - Free Report) — up 66.7% year to date
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: 4 Top-Ranked Sectors & Its ETFs to Play Amid Market Slump).
AUM: $2.80 billion
Total Expense Ratio: 0.81%
United States 12 Month Oil Fund (USL - Free Report) — up 50.8%
The fund replicates with possible accuracy, the price movements of West Texas Intermediate light, sweet crude oil.
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 fund’s expenses (read: Worried About Stagflation? Try the New ETF STGF).
AUM: $533 million
Total Expense Ratio: 0.77%
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Oil ETFs to Rally on EU's Latest Ban on Russian Crude Imports
Oil prices have been surging amid the Russia-Ukraine geopolitical crisis. The European Union leaders finally agreed on an embargo to restrict 90% of Russian crude by the end of 2022. The sanctions will immediately impose a ban on 75% of the Russian oil imports.
The U.S. crude futures for July increased 3.8% to $119.39 per barrel during Asia hours on May 31 (per a CNBC article). Also, the global benchmark Brent crude oil has risen 1.9% to $124.02 per barrel on the same day.
According to the statement issued by the European Council on May 31, “The European Council agrees that the sixth package of sanctions against Russia will cover crude oil, as well as petroleum products, delivered from Russia into Member States, with a temporary exception for crude oil delivered by pipeline.” This was reported in a CNBC article. Per the same article, this ban will be part of the sixth sanction package imposed by the European Union in response to Russia’s attack on Ukraine.
The European Commission president Ursula von der Leyen informed that the temporary exemption was granted to make sure that the countries like Hungary, Slovakia and the Czech Republic, which are connected to the southern side of the pipeline where it is difficult to arrange a replacement, get access to oil (per a CNBC article).
Increasing Demand in U.S and China
The EU’s oil embargo can induce a sharp rally in oil prices to increase the burden on the already tight oil supplies. U.S. gasoline demand is also soon going to shoot up as the Memorial Day weekend marks the beginning of the U.S. summer driving season. According to SPI Asset Management managing partner Stephen Innes, "Oil prices are supported as gasoline markets remain tight amid solid demand heading into the peak U.S. driving season. Refineries are typically in ramp-up mode to feed U.S. drivers' unquenching thirst at the pump," as mentioned in a Reuters article.
It is also worth noting here that Russia stands as the world’s second-largest oil producer. European refineries procure most of their crude oil supplies from Russia. Notably, the country also provides about two-fifths of its natural gas supply to Europe. In fact, it emerged as the largest natural gas and oil supplier to the European Union in 2021.
The end of a two-month-long COVID-19 lockdown in China’s biggest financial hub, Shanghai, will also bump up oil demand only to worsen the already tight supply-demand conditions in the oil market.
The Organization of the Petroleum Exporting Countries and allies including Russia, popularly known as OPEC+, is unable to support the asymmetrical supply-demand in the crude oil market by adhering to its original plan of an increase of 432,000 barrels a day for July, per a Reuters article.
Oil ETFs That Can Rally
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 Brent Oil Fund (BNO - Free Report) — up 66.7% year to date
The fund tracks the daily price movement of Brent crude oil (read: Top-Performing ETF Areas of Last Week).
AUM: $295.6 million
Total Expense Ratio: 1.02%
United States Oil Fund (USO - Free Report) — up 61.3%
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: 4 Top-Ranked Sectors & Its ETFs to Play Amid Market Slump).
AUM: $2.80 billion
Total Expense Ratio: 0.81%
United States 12 Month Oil Fund (USL - Free Report) — up 50.8%
The fund replicates with possible accuracy, the price movements of West Texas Intermediate light, sweet crude oil.
AUM: $144 million
Total Expense Ratio: 0.90%
Invesco DB Oil Fund (DBO - Free Report) — up 47.1%
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 fund’s expenses (read: Worried About Stagflation? Try the New ETF STGF).
AUM: $533 million
Total Expense Ratio: 0.77%