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Oil ETFs Gaining Most Cash Since 2020: Time to Tap?
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The ProShares Ultra Bloomberg Crude Oil ETF (UCO - Free Report) last week reported a daily inflow of $158 million, the second-largest amount the fund has pulled in over a single day, according to data going back to 2008, per a Bloomberg article, as quoted on Yahoo Finance. The leveraged oil fund seeks to return twice the daily performance of its underlying index. The fund recorded six successive inflows.
The move does not cause surprise as prices dropped to a 15-month low. First, the global central banks’ rate hikes and the resultant global growth fears and now the banking crisis and its ripple effects caused severe fear about the lower oil demand in the coming days. The fear, in fact, overrode the optimism surrounding the reopening of the Chinese economy which should bolster the oil demand profile.
Several analysts are of the view (per the Bloomberg article) that unless the latest banking crisis deepens further, the drop in oil could be overdone, even if prices are likely to remain volatile. This shows chances of a rebound in oil prices is in the cards, if government and other big banks arrest the collapse in the financial system.
Greenback to Remain Rangebound?
Moreover, wagers on steep Fed rate hikes have cooled down. Per CME Fed Watch Tool, there is a 62% chance of a 25-bp rate hike this week at the time of writing (versus 81.9% chance recorded a month ago), a 38% chance of no rate hike (versus 0% chance recorded a month ago) and 0% chance of a 50-bp rate hike (versus 18.1% chance recorded a month ago).
Actually, there are a few market participants who believe that the Fed may stick to its rate-hike path to keep investors’ confidence intact in the U.S. economy’s financial system. But it is highly unlikely for the Fed to opt for more than a 25-bp rate hike, if it at all happens. A less hawkish Fed and a slowdown in U.S. economic growth may keep the greenback subdued. This should spell good for oil prices as the liquid commodity is priced in the greenback (i.e. the U.S. dollar).
Long-Standing Under-Investment in the Sector
Continued underinvestment in the oil sector will keep global supply tight, per CEO of Aramco, the world’s largest oil company. Spending on the sector is $370 billion to $400 billion, currently in the upstream side, while it was approximately $700 billion in 2014,” Nasser said in a CNBC article. He indicated that China reopening could infuse 2 million barrels more demand (read: What Lies Ahead for Oil & Energy ETFs in the Medium Term?).
According to oil services company Baker Hughes, the active rig count in the United States dropped from a recent high of 627 in early December to 600 in late February. The number of rigs in use as of the end of February is at its lowest since early July 2022, the company reported.
Against this backdrop, below we highlight a few oil ETFs that can tapped at lower price and hold for some time to realize gains.
Image: Bigstock
Oil ETFs Gaining Most Cash Since 2020: Time to Tap?
The ProShares Ultra Bloomberg Crude Oil ETF (UCO - Free Report) last week reported a daily inflow of $158 million, the second-largest amount the fund has pulled in over a single day, according to data going back to 2008, per a Bloomberg article, as quoted on Yahoo Finance. The leveraged oil fund seeks to return twice the daily performance of its underlying index. The fund recorded six successive inflows.
The move does not cause surprise as prices dropped to a 15-month low. First, the global central banks’ rate hikes and the resultant global growth fears and now the banking crisis and its ripple effects caused severe fear about the lower oil demand in the coming days. The fear, in fact, overrode the optimism surrounding the reopening of the Chinese economy which should bolster the oil demand profile.
Several analysts are of the view (per the Bloomberg article) that unless the latest banking crisis deepens further, the drop in oil could be overdone, even if prices are likely to remain volatile. This shows chances of a rebound in oil prices is in the cards, if government and other big banks arrest the collapse in the financial system.
Greenback to Remain Rangebound?
Moreover, wagers on steep Fed rate hikes have cooled down. Per CME Fed Watch Tool, there is a 62% chance of a 25-bp rate hike this week at the time of writing (versus 81.9% chance recorded a month ago), a 38% chance of no rate hike (versus 0% chance recorded a month ago) and 0% chance of a 50-bp rate hike (versus 18.1% chance recorded a month ago).
Actually, there are a few market participants who believe that the Fed may stick to its rate-hike path to keep investors’ confidence intact in the U.S. economy’s financial system. But it is highly unlikely for the Fed to opt for more than a 25-bp rate hike, if it at all happens. A less hawkish Fed and a slowdown in U.S. economic growth may keep the greenback subdued. This should spell good for oil prices as the liquid commodity is priced in the greenback (i.e. the U.S. dollar).
Long-Standing Under-Investment in the Sector
Continued underinvestment in the oil sector will keep global supply tight, per CEO of Aramco, the world’s largest oil company. Spending on the sector is $370 billion to $400 billion, currently in the upstream side, while it was approximately $700 billion in 2014,” Nasser said in a CNBC article. He indicated that China reopening could infuse 2 million barrels more demand (read: What Lies Ahead for Oil & Energy ETFs in the Medium Term?).
According to oil services company Baker Hughes, the active rig count in the United States dropped from a recent high of 627 in early December to 600 in late February. The number of rigs in use as of the end of February is at its lowest since early July 2022, the company reported.
Against this backdrop, below we highlight a few oil ETFs that can tapped at lower price and hold for some time to realize gains.
ETFs in Focus
United States Oil Fund LP (USO - Free Report)
iPath Pure Beta Crude Oil ETN
United States 12 Month Oil Fund LP (USL - Free Report)
ProShares K-1 Free Crude Oil Strategy ETF (OILK - Free Report)
Invesco DB Oil Fund (DBO - Free Report)