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Oil prices have been in decent shape lately WTI crude ETF United States Oil Fund LP (USO - Free Report) gained 5.4% past month and 7.4% past week. Prices increased considerably as OPEC+ producers agreed on Oct 5 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. If this was not enough, rumors spread on social media last week that China (a major energy user) was easing its Covid policies, sending oil prices higher (read: Oil ETFs Up on Steep OPEC+ Output Cuts).
But prices fell on Monday morning as Chinese government officials signaled that the government is sticking to its ongoing zero-Covid policy. Weaker-than-expected Chinese export data and signs of lower demand globally pulled oil prices lower.
What Lies Ahead?
Investors should note that the greenback prices have been subdued of late as many are expecting slower Fed rate hike trail ahead. Since oil is priced in the U.S. dollar, a lower dollar will facilitate oil prices.
An easing of the dollar, an imminent EU ban on Russian oil from December, continued risks of supply due to prolonged supply chain crisis, the OPEC+ cuts in crude supply, falling U.S. crude inventory and a report that the United States and EU are likely to settle for a more loosely policed cap at a higher price than once intended should keep oil prices steady ahead.
The WTI Crude ETF USO has gained 41.3% this year despite China’s zero-Covid policy. Hence, the news of continuation of that policy is likely to be a short-term drag. Over the medium term, oil prices should be in decent shape.
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.
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: Pain or Gain Ahead?
Oil prices have been in decent shape lately WTI crude ETF United States Oil Fund LP (USO - Free Report) gained 5.4% past month and 7.4% past week. Prices increased considerably as OPEC+ producers agreed on Oct 5 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. If this was not enough, rumors spread on social media last week that China (a major energy user) was easing its Covid policies, sending oil prices higher (read: Oil ETFs Up on Steep OPEC+ Output Cuts).
But prices fell on Monday morning as Chinese government officials signaled that the government is sticking to its ongoing zero-Covid policy. Weaker-than-expected Chinese export data and signs of lower demand globally pulled oil prices lower.
What Lies Ahead?
Investors should note that the greenback prices have been subdued of late as many are expecting slower Fed rate hike trail ahead. Since oil is priced in the U.S. dollar, a lower dollar will facilitate oil prices.
An easing of the dollar, an imminent EU ban on Russian oil from December, continued risks of supply due to prolonged supply chain crisis, the OPEC+ cuts in crude supply, falling U.S. crude inventory and a report that the United States and EU are likely to settle for a more loosely policed cap at a higher price than once intended should keep oil prices steady ahead.
The WTI Crude ETF USO has gained 41.3% this year despite China’s zero-Covid policy. Hence, the news of continuation of that policy is likely to be a short-term drag. Over the medium term, oil prices should be in decent shape.
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 - Free Report)
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.