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Oil prices remained at a solid shape in the third quarter of 2023 due to reduced supplies and ebbing U.S. recession fears. Oil futures touched a fresh 2023 high of more than $95 on Sep 27 after inventories at the largest storage hub in the United States dropped toward levels nearing operational minimums.
Saudi Arabia prolonged its voluntary one-million-barrel oil supply cut through to the end of the year. Russia too has moved to draw down global inventories and vowed to cut oil exports by 300,000 barrels per day until the end of the year (read: Top ETF Stories of Q3).
Protracted Bull Run for Oil Likely to Slow in 2024?
Oil prices have been a point of discussion in recent months, with some analysts predicting prices reaching $100 per barrel due to supply shocks. Though prices remained steady currently due to geopolitical tensions in the Middle East, chances of a prolonged bull run in oil prices have been dampened lately as the "demand destruction" started to manifest in the energy sector.
Fundstrat's head of research, Tom Lee, pointed out that while geopolitical risks might result in a short-term spike in oil prices, the weak demand could limit any sustained increase. Lee suggests that the latest price surge amid the Israel-Hamas conflict is likely to fade over time, as quoted on Yahoo Finance.
The sustained bull run in oil prices is expected to slow down in 2024, according to a note from Citi, as quoted on Yahoo Finance. Ed Morse and his team from Citi believe that $90 prices may not be sustainable, especially considering the anticipated faster supply growth. Citi forecasts Brent to average $82 in Q4 and $74 for 2024, before the Israel-Gaza war.
Citi's forecasters highlight those countries outside OPEC+, including the United States, Brazil, Canada, and Guyana, are boosting their oil output. Additionally, exports from Venezuela and Iran have also seen growth. After all, interest rates are peaking in many economies. This should boost demand growth in those countries.
If these were not enough, the U.S. dollar is at a solid shape right now. A surging greenback is negative for oil prices as the liquid commodity is priced in the U.S. dollar.
ETFs to Win
If oil prices slip in 2024, the below-mentioned ETF areas are likely to gain.
Inverse Energy ETFs
Investors may want to consider diversifying their portfolios with inverse energy ETFs. If oil prices drop, these financial instruments can offer a hedge against declines, turning market volatility into potential profit. These ETFs include MicroSectors Oil & Gas Exp. & Prod. -3x Inverse Leveraged ETN (OILD - Free Report) and ProShares UltraShort Energy (DUG - Free Report) and Direxion Daily Energy Bear 2X Shares (ERY).
Airlines
The airline sector also performs better in a falling crude scenario. This is especially true as energy costs form a major portion of the overall cost of this sector. Hence, airlines ETF U.S. Global Jets ETF (JETS - Free Report) is likely to soar.
Oil Refiners
Companies in the refining segment benefit from lower oil prices as crude is one of their main input costs. After buying crude, refiners transform it to the finished product gasoline. So, with crude prices falling, refiners may see a higher crack spread and their profitability may be boosted. VanEck Vectors Oil Refiners ETF (CRAK - Free Report) is set to win in such a scenario.
Retail
Rising energy prices do not bode well for retailers as consumers’ wallets get squeezed from higher outlays on gas stations. In fact, not only oil, overall inflation will be rising, hurting consumers’ buying power. Thus, SPDR S&P Retail ETF (XRT - Free Report) will win in a falling oil price environment.
India
India is almost entirely dependent on imports to back its oil needs. An oil price slump could thus be a major tailwind to India investing. iShares India 50 ETF (INDY - Free Report) is a good pick here.
Speculation Around $100 per Barrel
However, investors should note forget that amid the recent Spike in oil prices, talks are doing rounds that oil might touch the $100 per barrel mark soon. Notably, Goldman Sachs has revised its price target, expecting oil to reach this level in the next year.
According to RBC Capital, the oil market is "within striking distance" of the coveted $100 mark if the current momentum continues, per the above-mentioned source. If this happens, then the abode-said ETF investing scenario will change completely, (read: Oil to Touch $100 Soon? Sector ETFs to Benefit/Lose).
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Is Oil Set to Dive in 2024? ETF Areas to Gain
Oil prices remained at a solid shape in the third quarter of 2023 due to reduced supplies and ebbing U.S. recession fears. Oil futures touched a fresh 2023 high of more than $95 on Sep 27 after inventories at the largest storage hub in the United States dropped toward levels nearing operational minimums.
Saudi Arabia prolonged its voluntary one-million-barrel oil supply cut through to the end of the year. Russia too has moved to draw down global inventories and vowed to cut oil exports by 300,000 barrels per day until the end of the year (read: Top ETF Stories of Q3).
Protracted Bull Run for Oil Likely to Slow in 2024?
Oil prices have been a point of discussion in recent months, with some analysts predicting prices reaching $100 per barrel due to supply shocks. Though prices remained steady currently due to geopolitical tensions in the Middle East, chances of a prolonged bull run in oil prices have been dampened lately as the "demand destruction" started to manifest in the energy sector.
Fundstrat's head of research, Tom Lee, pointed out that while geopolitical risks might result in a short-term spike in oil prices, the weak demand could limit any sustained increase. Lee suggests that the latest price surge amid the Israel-Hamas conflict is likely to fade over time, as quoted on Yahoo Finance.
The sustained bull run in oil prices is expected to slow down in 2024, according to a note from Citi, as quoted on Yahoo Finance. Ed Morse and his team from Citi believe that $90 prices may not be sustainable, especially considering the anticipated faster supply growth. Citi forecasts Brent to average $82 in Q4 and $74 for 2024, before the Israel-Gaza war.
Citi's forecasters highlight those countries outside OPEC+, including the United States, Brazil, Canada, and Guyana, are boosting their oil output. Additionally, exports from Venezuela and Iran have also seen growth. After all, interest rates are peaking in many economies. This should boost demand growth in those countries.
If these were not enough, the U.S. dollar is at a solid shape right now. A surging greenback is negative for oil prices as the liquid commodity is priced in the U.S. dollar.
ETFs to Win
If oil prices slip in 2024, the below-mentioned ETF areas are likely to gain.
Inverse Energy ETFs
Investors may want to consider diversifying their portfolios with inverse energy ETFs. If oil prices drop, these financial instruments can offer a hedge against declines, turning market volatility into potential profit. These ETFs include MicroSectors Oil & Gas Exp. & Prod. -3x Inverse Leveraged ETN (OILD - Free Report) and ProShares UltraShort Energy (DUG - Free Report) and Direxion Daily Energy Bear 2X Shares (ERY).
Airlines
The airline sector also performs better in a falling crude scenario. This is especially true as energy costs form a major portion of the overall cost of this sector. Hence, airlines ETF U.S. Global Jets ETF (JETS - Free Report) is likely to soar.
Oil Refiners
Companies in the refining segment benefit from lower oil prices as crude is one of their main input costs. After buying crude, refiners transform it to the finished product gasoline. So, with crude prices falling, refiners may see a higher crack spread and their profitability may be boosted. VanEck Vectors Oil Refiners ETF (CRAK - Free Report) is set to win in such a scenario.
Retail
Rising energy prices do not bode well for retailers as consumers’ wallets get squeezed from higher outlays on gas stations. In fact, not only oil, overall inflation will be rising, hurting consumers’ buying power. Thus, SPDR S&P Retail ETF (XRT - Free Report) will win in a falling oil price environment.
India
India is almost entirely dependent on imports to back its oil needs. An oil price slump could thus be a major tailwind to India investing. iShares India 50 ETF (INDY - Free Report) is a good pick here.
Speculation Around $100 per Barrel
However, investors should note forget that amid the recent Spike in oil prices, talks are doing rounds that oil might touch the $100 per barrel mark soon. Notably, Goldman Sachs has revised its price target, expecting oil to reach this level in the next year.
According to RBC Capital, the oil market is "within striking distance" of the coveted $100 mark if the current momentum continues, per the above-mentioned source. If this happens, then the abode-said ETF investing scenario will change completely, (read: Oil to Touch $100 Soon? Sector ETFs to Benefit/Lose).