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Amid all the hope and gloom related to oil price recovery, the U.S. Energy Information Administration (IEA) lately uppedits forecast for oil price and output for West Texas Intermediate (WTI) and Brent crude oil for this year and initiated guidance for 2018.
The agency beefed up projection for WTI prices to $52.50 a barrel for this year from the $50.66 forecast in December, while Brent crude is expected to be at $53.50 this year, up from $51.66projected before. For 2018, WTI and Brent crude are expected to be at $55.18 and $56.18, respectively.
The OPEC output cut deal signed in November end and effective this month built all the hope surrounding oil price recovery. Benchmark North Sea Brent crude oil spot prices averaged $53/barrel in December, up $9/barrelfrom November. This was the first time since July 2015 that Brent spot prices passed the $50/b mark.
The uptick in oil price projection was driven by higher global consumption than output. Global oil consumption is expected to rise from 95.57mbpd last year to 97.20 mbpd this year. However, Light Sweet Crude Oil Futures for February hovers around $52.51, at the time of writing. Though it is representing no upside potential right now, it can fetch some returns if held for a bit longer, going by IEA’s forecast.
Having said this, we would like to note that there are many bullish projections making rounds in the market. Goldman Sachsexpects Brent oil prices to reach to $59 per barrel in mid-2017 on OPEC and non-OPEC cuts. The output reduction also may take the oil patch into a deficit in the first quarter. On the other hand, the International Energy Agencybelieves that the oil market may see a deficit in the first half of 2017 by an estimated 600,000 bpd.
Based on this, investors with a strong stomach for risks can play WTI crude oil ETF United States Oil (USO - Free Report) and Brent crude ETF United States Brent Oil (BNO - Free Report) but with a short-term notion. USO and BNO have a positive weighted alpha of 20.17and 42.82, respectively, with volatility levels of 22.73% and 22.44%. A positive weighted alpha hints at more gains. However, ProShares UltraShort Bloomberg Crude Oil (SCO - Free Report) can also come to investors’ rescue whenever there is the risk of an oil price retreat (read: 5 ETF Investment Ideas for 2017).
Improved Oil Output
Alongside, the EIA also increased its estimate on U.S. crude output to 9 million barrels a day for this year from the prior projection of 8.78 million. For 2018, its forecast output is 9.3 million barrels a day. In short, going by EIA, the almost two-yearlong rout in U.S. oil production is likely to ease out (read: Should You Buy the Dip in Oil Services ETFs?).
The increased average oil price and improved drilling efficiency actually led to a rise in U.S. oil output in the final three months of 2016, which was the first quarterly output growth since early 2015. SPDR S&P Oil & Gas Equipment & Svcs ETF (XES - Free Report) and iShares US Oil Equipment & Services ETF (IEZ - Free Report) could be beneficiaries of this trend (see all energy ETFshere).
Natural Gas Production to Rise?
EIA estimates that natural gas as a source of fuel in utility-scale electricity generation beat coal for the first time in 2016. While natural gas had a 34% share, coal held 30%. In 2017, the share is likely to remain the same while in 2018, natural gas and coal will produce 33% and 32% of electricity, respectively.
The Henry Hub natural gas spot price averaged $2.51/million British thermal units (MMBtu) in 2016 and may rise to an average of $3.55/MMBtu in 2017 and $3.73/MMBtu in 2018. Inclement weather and falling reserves should act as tailwinds in the near term (read: Natural Gas ETFs Warm Up: Will the Rally Continue?).
As per a source, over a third of U.S. electricity is generated from gas powered plants, making the investment case for First Trust Natural Gas ETF (FCG - Free Report) stronger. FCG has a positive weighted alpha of 36.08with volatility levels of 14.09%.
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Amid all the hope and gloom related to oil price recovery, the U.S. Energy Information Administration (IEA) lately uppedits forecast for oil price and output for West Texas Intermediate (WTI) and Brent crude oil for this year and initiated guidance for 2018.
The agency beefed up projection for WTI prices to $52.50 a barrel for this year from the $50.66 forecast in December, while Brent crude is expected to be at $53.50 this year, up from $51.66projected before. For 2018, WTI and Brent crude are expected to be at $55.18 and $56.18, respectively.
The OPEC output cut deal signed in November end and effective this month built all the hope surrounding oil price recovery. Benchmark North Sea Brent crude oil spot prices averaged $53/barrel in December, up $9/barrelfrom November. This was the first time since July 2015 that Brent spot prices passed the $50/b mark.
The uptick in oil price projection was driven by higher global consumption than output. Global oil consumption is expected to rise from 95.57mbpd last year to 97.20 mbpd this year. However, Light Sweet Crude Oil Futures for February hovers around $52.51, at the time of writing. Though it is representing no upside potential right now, it can fetch some returns if held for a bit longer, going by IEA’s forecast.
Having said this, we would like to note that there are many bullish projections making rounds in the market. Goldman Sachsexpects Brent oil prices to reach to $59 per barrel in mid-2017 on OPEC and non-OPEC cuts. The output reduction also may take the oil patch into a deficit in the first quarter. On the other hand, the International Energy Agencybelieves that the oil market may see a deficit in the first half of 2017 by an estimated 600,000 bpd.
Based on this, investors with a strong stomach for risks can play WTI crude oil ETF United States Oil (USO - Free Report) and Brent crude ETF United States Brent Oil (BNO - Free Report) but with a short-term notion. USO and BNO have a positive weighted alpha of 20.17and 42.82, respectively, with volatility levels of 22.73% and 22.44%. A positive weighted alpha hints at more gains. However, ProShares UltraShort Bloomberg Crude Oil (SCO - Free Report) can also come to investors’ rescue whenever there is the risk of an oil price retreat (read: 5 ETF Investment Ideas for 2017).
Improved Oil Output
Alongside, the EIA also increased its estimate on U.S. crude output to 9 million barrels a day for this year from the prior projection of 8.78 million. For 2018, its forecast output is 9.3 million barrels a day. In short, going by EIA, the almost two-yearlong rout in U.S. oil production is likely to ease out (read: Should You Buy the Dip in Oil Services ETFs?).
The increased average oil price and improved drilling efficiency actually led to a rise in U.S. oil output in the final three months of 2016, which was the first quarterly output growth since early 2015. SPDR S&P Oil & Gas Equipment & Svcs ETF (XES - Free Report) and iShares US Oil Equipment & Services ETF (IEZ - Free Report) could be beneficiaries of this trend (see all energy ETFshere).
Natural Gas Production to Rise?
EIA estimates that natural gas as a source of fuel in utility-scale electricity generation beat coal for the first time in 2016. While natural gas had a 34% share, coal held 30%. In 2017, the share is likely to remain the same while in 2018, natural gas and coal will produce 33% and 32% of electricity, respectively.
The Henry Hub natural gas spot price averaged $2.51/million British thermal units (MMBtu) in 2016 and may rise to an average of $3.55/MMBtu in 2017 and $3.73/MMBtu in 2018. Inclement weather and falling reserves should act as tailwinds in the near term (read: Natural Gas ETFs Warm Up: Will the Rally Continue?).
As per a source, over a third of U.S. electricity is generated from gas powered plants, making the investment case for First Trust Natural Gas ETF (FCG - Free Report) stronger. FCG has a positive weighted alpha of 36.08with volatility levels of 14.09%.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>