We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Can Oil ETFs Extend its Winning Streak for First Time Since June'22?
Read MoreHide Full Article
The energy market is on a tear. The September West Texas Intermediate (WTI) crude oil contracts witnessed a solid rally for the seventh consecutive week, marking first such instance since June 2022, per CNBC. Similarly, the October Brent crude oil contracts, which serve as an international benchmark, also experienced a seven-week streak of gains (read: Oil Price Rallies: Sector ETFs to Benefit).
September natural gas contracts exhibited a huge climb of 7.5% last week. This increase stands as the most substantial weekly surge since mid-June. September gasoline contracts recorded a notable gain of 6.5% last week, marking the most substantial weekly rise since early March. This increase also marks the fourth time in the past five weeks that gasoline prices have risen.
Among the eleven primary sectors within the S&P 500, the Energy Index displayed the most outstanding performance last week. It surged by 3.5%, outperforming the Healthcare Index, which gained 2.5%, and the S&P 500 as a whole, which experienced a modest loss of 0.3%.
What’s Behind the Surge?
This surge was aided by a combination of geopolitical tensions and extended output cuts by major oil-producing nations. Below we highlight the triggering factors in detail.
OPEC ace Saudi Arabia, the world's top oil exporter, extended its voluntary crude oil output cut of one million barrels per day until the end of September. The initial cut was implemented in July through August and was later extended with the possibility of further extensions and deepening.
Plus, Ukraine's naval drone attack on Russia's port of Novorossiysk, a crucial hub for Russian oil exports on the Black Sea, heightened geopolitical tensions. This incident led to concerns about potential disruptions in oil supply from Russia, the world's second-largest oil exporter, per a CNBC article.
A few upbeat U.S. economic data points and policy easing in China have boosted oil prices in recent weeks on hopes of higher demand. Aso, expectations that the Fed is nearing the end of its monetary tightening cycle have boosted market sentiment and contributed to the latest oil price rally. United States Oil Fund LP (USO - Free Report) is up 12.7% past month (as of Aug 11, 2023).
Oil Prices to Soften Ahead?
Citi's Ed Morse, the global head of commodity research at the bank, is relatively more optimistic about crude oil supplies after September. He anticipates that Saudi Arabia and Russia's output will likely increase in October, leading to a potential price ceiling of $90 per barrel this quarter. Morse also cites limited demand growth, particularly in China, as a contributing factor to price stability beyond the current quarter.
Notably, real estate trouble once again flared in China as one of the biggest developers – Country Garden – crisis hits record low after profit warning. The company is also reeling under debt pressure. Two years ago, China’s real estate behemoth Evergrande's default triggered chaos in the global markets. Since then, China's ailing property sector has tried to stand on its foot with the government’s help. But we can see little progress has been made so far.
If this was not enough, a clear majority of investors anticipate that the U.S. economy will bumped into a recession by the end of 2024, according to a recent Bloomberg survey. Moody's recently downgraded the credit ratings of 10 U.S. banks and warned of possible cuts to more lenders. Moody's announcement came after the ratings firm Fitch downgraded U.S. government debt rating in early August. All these factors raise demand woes for energy (read: Moody's Downgrade 10 U.S. Banks: ETF Strategies to Play).
ETFs in Focus
Against this backdrop, investors need to take a cautious approach while it comes to oil investing. In a bull case scenario, oil ETFs like ProShares K-1 Free Crude Oil Strategy ETF (OILK - Free Report) , Invesco DB Oil Fund (DBO - Free Report) and Invesco DB Oil Fund (USL - Free Report) could be winning picks. These ETFs added gains of 12.59%, 12.52% and 12.40% past month (as of Aug 11, 2023), respectively.
However, if oil prices slump on global growth issues and the rise in the greenback, investors can bet on inverse/leveraged oil ETFs like MicroSectors Energy 3X Inverse Leveraged ETNs (WTID - Free Report) , MicroSectors Oil & Gas Exp. & Prod. -3x Inverse Leveraged ETN (OILD - Free Report) and ProShares UltraShort Bloomberg Crude Oil (SCO).
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Can Oil ETFs Extend its Winning Streak for First Time Since June'22?
The energy market is on a tear. The September West Texas Intermediate (WTI) crude oil contracts witnessed a solid rally for the seventh consecutive week, marking first such instance since June 2022, per CNBC. Similarly, the October Brent crude oil contracts, which serve as an international benchmark, also experienced a seven-week streak of gains (read: Oil Price Rallies: Sector ETFs to Benefit).
September natural gas contracts exhibited a huge climb of 7.5% last week. This increase stands as the most substantial weekly surge since mid-June. September gasoline contracts recorded a notable gain of 6.5% last week, marking the most substantial weekly rise since early March. This increase also marks the fourth time in the past five weeks that gasoline prices have risen.
Among the eleven primary sectors within the S&P 500, the Energy Index displayed the most outstanding performance last week. It surged by 3.5%, outperforming the Healthcare Index, which gained 2.5%, and the S&P 500 as a whole, which experienced a modest loss of 0.3%.
What’s Behind the Surge?
This surge was aided by a combination of geopolitical tensions and extended output cuts by major oil-producing nations. Below we highlight the triggering factors in detail.
OPEC ace Saudi Arabia, the world's top oil exporter, extended its voluntary crude oil output cut of one million barrels per day until the end of September. The initial cut was implemented in July through August and was later extended with the possibility of further extensions and deepening.
Plus, Ukraine's naval drone attack on Russia's port of Novorossiysk, a crucial hub for Russian oil exports on the Black Sea, heightened geopolitical tensions. This incident led to concerns about potential disruptions in oil supply from Russia, the world's second-largest oil exporter, per a CNBC article.
A few upbeat U.S. economic data points and policy easing in China have boosted oil prices in recent weeks on hopes of higher demand. Aso, expectations that the Fed is nearing the end of its monetary tightening cycle have boosted market sentiment and contributed to the latest oil price rally. United States Oil Fund LP (USO - Free Report) is up 12.7% past month (as of Aug 11, 2023).
Oil Prices to Soften Ahead?
Citi's Ed Morse, the global head of commodity research at the bank, is relatively more optimistic about crude oil supplies after September. He anticipates that Saudi Arabia and Russia's output will likely increase in October, leading to a potential price ceiling of $90 per barrel this quarter. Morse also cites limited demand growth, particularly in China, as a contributing factor to price stability beyond the current quarter.
Notably, real estate trouble once again flared in China as one of the biggest developers – Country Garden – crisis hits record low after profit warning. The company is also reeling under debt pressure. Two years ago, China’s real estate behemoth Evergrande's default triggered chaos in the global markets. Since then, China's ailing property sector has tried to stand on its foot with the government’s help. But we can see little progress has been made so far.
If this was not enough, a clear majority of investors anticipate that the U.S. economy will bumped into a recession by the end of 2024, according to a recent Bloomberg survey. Moody's recently downgraded the credit ratings of 10 U.S. banks and warned of possible cuts to more lenders. Moody's announcement came after the ratings firm Fitch downgraded U.S. government debt rating in early August. All these factors raise demand woes for energy (read: Moody's Downgrade 10 U.S. Banks: ETF Strategies to Play).
ETFs in Focus
Against this backdrop, investors need to take a cautious approach while it comes to oil investing. In a bull case scenario, oil ETFs like ProShares K-1 Free Crude Oil Strategy ETF (OILK - Free Report) , Invesco DB Oil Fund (DBO - Free Report) and Invesco DB Oil Fund (USL - Free Report) could be winning picks. These ETFs added gains of 12.59%, 12.52% and 12.40% past month (as of Aug 11, 2023), respectively.
However, if oil prices slump on global growth issues and the rise in the greenback, investors can bet on inverse/leveraged oil ETFs like MicroSectors Energy 3X Inverse Leveraged ETNs (WTID - Free Report) , MicroSectors Oil & Gas Exp. & Prod. -3x Inverse Leveraged ETN (OILD - Free Report) and ProShares UltraShort Bloomberg Crude Oil (SCO).