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Here's Why Oil ETFs Likely to Gain in the Near Term
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Despite prevailing economic challenges impacting the broader energy industry, investor confidence regarding the oil market is optimistic. The price of oil remains strong and there is potential for further increase as global crude consumption is expected to rise. United States Oil Fund LP (USO - Free Report) and United States Brent Oil Fund, LP (BNO - Free Report) has gained 9.1% and 8.5%, respectively, in the past one month (as of Jul 14, 2022).
Inside Rising Oil Prices
West Texas Intermediate (WTI) oil recently reached its highest level since late April and is currently trading above $76 per barrel. Brent crude is trading at over $81 per barrel, indicating a robust pricing environment. Positive projections for global oil demand, a weaker U.S. dollar, and ongoing supply cuts from OPEC+ have contributed to these price trends.
The recessionary fears are ebbing in the United States. Goldman Sachs expects a 20% chance of a U.S. recession in the next 12 months, per a Yahoo Finance article. The firm had initially predicted a 25% probability of a recession, which is significantly lower than the 54% chance indicated by the consensus estimates mentioned in the Wall Street Journal. It means higher energy demand is likely ahead.
U.S. investors now expect a possible tightening of U.S. crude supplies. The data is about to release later on Tuesday. Four analysts polled by Reuters estimated on average that U.S. crude inventories dropped by about 2.3 million barrels in the week to July 14, per Reuters, as quoted on a Yahoo article.
According to the latest monthly oil market report from the Organization of the Petroleum Exporting Countries (OPEC), the forecast for global oil market demand growth in 2023 has been revised upward to 2.44 thousand barrels per day (mb/d), compared to the previous estimate of 2.35 mb/d. The report also highlights expectations of increased oil consumption next year, driven by improved economic growth worldwide.
The International Energy Agency's most recent monthly report states that global oil demand is expected to reach 102.1 mb/d this year, indicating a growth of 2.2 mb/d. The U.S. recessionary fears are also easing. Therefore, with tightening supply and higher commodity consumption, the outlook for crude prices remains favorable in the near term.
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 60 bps in fees.
The underlying DBIQ Optimum Yield Crude Oil Index 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 76 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 71 bps in fees and yields 4.94% annually.
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 85 bps in fees.
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Here's Why Oil ETFs Likely to Gain in the Near Term
Despite prevailing economic challenges impacting the broader energy industry, investor confidence regarding the oil market is optimistic. The price of oil remains strong and there is potential for further increase as global crude consumption is expected to rise. United States Oil Fund LP (USO - Free Report) and United States Brent Oil Fund, LP (BNO - Free Report) has gained 9.1% and 8.5%, respectively, in the past one month (as of Jul 14, 2022).
Inside Rising Oil Prices
West Texas Intermediate (WTI) oil recently reached its highest level since late April and is currently trading above $76 per barrel. Brent crude is trading at over $81 per barrel, indicating a robust pricing environment. Positive projections for global oil demand, a weaker U.S. dollar, and ongoing supply cuts from OPEC+ have contributed to these price trends.
The recessionary fears are ebbing in the United States. Goldman Sachs expects a 20% chance of a U.S. recession in the next 12 months, per a Yahoo Finance article. The firm had initially predicted a 25% probability of a recession, which is significantly lower than the 54% chance indicated by the consensus estimates mentioned in the Wall Street Journal. It means higher energy demand is likely ahead.
U.S. investors now expect a possible tightening of U.S. crude supplies. The data is about to release later on Tuesday. Four analysts polled by Reuters estimated on average that U.S. crude inventories dropped by about 2.3 million barrels in the week to July 14, per Reuters, as quoted on a Yahoo article.
According to the latest monthly oil market report from the Organization of the Petroleum Exporting Countries (OPEC), the forecast for global oil market demand growth in 2023 has been revised upward to 2.44 thousand barrels per day (mb/d), compared to the previous estimate of 2.35 mb/d. The report also highlights expectations of increased oil consumption next year, driven by improved economic growth worldwide.
The International Energy Agency's most recent monthly report states that global oil demand is expected to reach 102.1 mb/d this year, indicating a growth of 2.2 mb/d. The U.S. recessionary fears are also easing. Therefore, with tightening supply and higher commodity consumption, the outlook for crude prices remains favorable in the near term.
ETFs in Focus
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 60 bps in fees.
Invesco DB Oil Fund (DBO - Free Report)
The underlying DBIQ Optimum Yield Crude Oil Index 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 76 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 71 bps in fees and yields 4.94% annually.
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 85 bps in fees.