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Time for Oil & Energy ETFs?

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The U.S. crude oil, specifically West Texas Intermediate (WTI), experienced its most substantial weekly increase in over four months last week, per CNBC. United States Oil ETF (USO - Free Report) gained about 6.1% last week.

This surge was largely attributed to positive economic developments in the United States and China, the world's two largest economies, bolstering hopes for increased crude demand. Both WTI and Brent benchmarks have seen over an 8% rise since the beginning of the year.

U.S. and China Economic Developments

The U.S. reported a stronger-than-expected economic growth rate of 3.3% in the fourth quarter, surpassing Wall Street's 2% forecast. Concurrently, China is taking measures to stimulate growth, such as loosening bank reserve requirements, amidst concerns of an economic slowdown.

Supply Side Factors

The U.S. witnessed a decline in crude supply due to winter storms, with a significant drop in inventories and production. On the global front, OPEC and its allies, OPEC+, are maintaining their output cuts to support oil prices.

Regional Tensions and Supply Risks

Tensions in the Red Sea and the Baltic Sea pose risks to oil supplies. Houthi militants in Yemen continue to target shipping in the Red Sea, affecting global supply chains. Additionally, a suspected Ukrainian drone attack on a Russian fuel terminal highlights the ongoing geopolitical threats to fuel supplies.

Gaza Truce in the Cards?

There are ongoing efforts for a truce in Gaza, which could potentially reduce Middle Eastern geopolitical risks that typically escalate crude prices. The White House is actively involved in these negotiations, though challenges remain, including Hamas's demand for a permanent ceasefire.

ETFs in Focus

Against this backdrop, below we highlight a few oil and energy ETFs that could score gains in the near term.

United States Oil Fund LP (USO - Free Report) – Up 8.4% this year

United States Gasoline Fund LP (UGA - Free Report) – Up 7.6% this year

United States Brent Oil Fund LP (BNO - Free Report) – Up 7.4% this year

ProShares K-1 Free Crude Oil Strategy ETF (OILK - Free Report) – Up 6.8% this year

SPDR S&P Oil & Gas Equipment & Services ETF (XES - Free Report) – Up 6.6% this year

United States 12 Month Oil Fund LP (USL - Free Report) – Up 6.5% this year

VanEck Oil Services ETF (OIH - Free Report) – Up 6.3% this year

(Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.)

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