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Oil to Stay Elevated Above Pre-Conflict Levels: Energy ETFs to Benefit
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Key Takeaways
Oil stays elevated as Hormuz disruptions and stalled talks tighten supply.
Goldman Sachs and Morgan Stanley's forecasts signal sustained elevated oil prices.
Energy ETFs stand to benefit from sustained strength in oil prices.
Brent crude, the global benchmark, climbed above $106 per barrel, gaining nearly 7% over the past five days as oil rose this Monday as stalled Iran talks kept shipment flows through the Strait of Hormuz constrained, extending the ongoing supply shocks.
Per Kpler data, as quoted on Reuters, just one oil products tanker entered the Gulf on Sunday, highlighting that shipping activity remains sharply limited. Per the abovementioned Reuters article, prospects for renewed peace talks dimmed over the weekend, suggesting that expectations for a near-term reopening of the Strait of Hormuz may be overly optimistic, with disruptions likely to persist.
With little progress in diplomatic efforts between Washington and Tehran, alongside escalating tensions over control of the Strait, oil prices appear poised to remain elevated in the near term. Per Dutch bank ING’s head of commodities strategy, Warren Patterson, ongoing disruptions are tightening the market by the day, forcing prices to reprice higher, as quoted on CNBC.
JPMorgan, Goldman See More Upside Ahead
As quoted on OilPrice.com, JPMorgan believes oil prices still have further upside, noting that prices have not risen enough to curb demand and offset ongoing supply disruptions stemming from the Iran conflict. According to the bank’s commodities strategist Natasha Kaneva, global supply disruptions surged from 9.1 million barrels per day in March to 13.7 million barrels per day in April, underscoring the severity of the shock.
The Wall Street giant notes oil prices are still not high enough to explain the sharp demand loss, pointing instead to physical supply constraints as the key factor weighing on consumption, especially in more vulnerable markets.
Per the abovementioned article, JPMorgan states that despite aggressive inventory drawdowns of roughly 8 million barrels per day, the market remains undersupplied by nearly 2 million barrels per day. Additionally, Kaneva notes that further price increases may be necessary to curb demand and rebalance the market.
Adding to the tightness, Goldman Sachs lifted its fourth-quarter oil price forecasts to $90 per barrel for Brent and $83 for WTI, driven by reduced Middle East production, as quoted on Reuters. Additionally, Morgan Stanley kept its Brent outlook unchanged, projecting averages of $110 per barrel this quarter, easing to $100 in the third quarter and $90 in the fourth quarter, as quoted on Yahoo Finance.
Oil’s Bull Case Goes Beyond Hormuz Disruption
Even with a potential reopening of the Strait of Hormuz, oil prices are expected to remain elevated, with supply relief expected to be limited. Shipping activity may normalize gradually, but infrastructure damage across the Middle East continues to limit output. IEA chief Fatih Birol warned that restoring supply could take up to two years and that markets may be underpricing prolonged disruption risks, Reuters reported.
ETFs to Explore
Leveraged Energy ETFs
Investors willing to take on higher risk and capitalize on prolonged uncertainty around diplomatic talks may consider increasing exposure to leveraged energy ETFs. However, given their structure, these instruments are best suited for short-term trading and require a disciplined investment horizon.
Investors can consider Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X ETF (GUSH - Free Report) , Direxion DailyEnergy Bull 2X ETF (ERX - Free Report) and ProShares Ultra Energy (DIG - Free Report) .
Energy ETFs Worth Watching
For investors unwilling to take on the added risk of leveraged energy ETFs, a more prudent approach may be to maintain a long-term bullish stance on oil and stay invested in energy ETFs. This allows participation in a higher-for-longer price environment while avoiding short-term, headline-driven volatility.
Investors can consider State Street Energy Select Sector SPDR ETF (XLE - Free Report) , Vanguard Energy ETF (VDE - Free Report) and State Street SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report) .
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Oil to Stay Elevated Above Pre-Conflict Levels: Energy ETFs to Benefit
Key Takeaways
Brent crude, the global benchmark, climbed above $106 per barrel, gaining nearly 7% over the past five days as oil rose this Monday as stalled Iran talks kept shipment flows through the Strait of Hormuz constrained, extending the ongoing supply shocks.
Per Kpler data, as quoted on Reuters, just one oil products tanker entered the Gulf on Sunday, highlighting that shipping activity remains sharply limited. Per the abovementioned Reuters article, prospects for renewed peace talks dimmed over the weekend, suggesting that expectations for a near-term reopening of the Strait of Hormuz may be overly optimistic, with disruptions likely to persist.
With little progress in diplomatic efforts between Washington and Tehran, alongside escalating tensions over control of the Strait, oil prices appear poised to remain elevated in the near term. Per Dutch bank ING’s head of commodities strategy, Warren Patterson, ongoing disruptions are tightening the market by the day, forcing prices to reprice higher, as quoted on CNBC.
JPMorgan, Goldman See More Upside Ahead
As quoted on OilPrice.com, JPMorgan believes oil prices still have further upside, noting that prices have not risen enough to curb demand and offset ongoing supply disruptions stemming from the Iran conflict. According to the bank’s commodities strategist Natasha Kaneva, global supply disruptions surged from 9.1 million barrels per day in March to 13.7 million barrels per day in April, underscoring the severity of the shock.
The Wall Street giant notes oil prices are still not high enough to explain the sharp demand loss, pointing instead to physical supply constraints as the key factor weighing on consumption, especially in more vulnerable markets.
Per the abovementioned article, JPMorgan states that despite aggressive inventory drawdowns of roughly 8 million barrels per day, the market remains undersupplied by nearly 2 million barrels per day. Additionally, Kaneva notes that further price increases may be necessary to curb demand and rebalance the market.
Adding to the tightness, Goldman Sachs lifted its fourth-quarter oil price forecasts to $90 per barrel for Brent and $83 for WTI, driven by reduced Middle East production, as quoted on Reuters. Additionally, Morgan Stanley kept its Brent outlook unchanged, projecting averages of $110 per barrel this quarter, easing to $100 in the third quarter and $90 in the fourth quarter, as quoted on Yahoo Finance.
Oil’s Bull Case Goes Beyond Hormuz Disruption
Even with a potential reopening of the Strait of Hormuz, oil prices are expected to remain elevated, with supply relief expected to be limited. Shipping activity may normalize gradually, but infrastructure damage across the Middle East continues to limit output. IEA chief Fatih Birol warned that restoring supply could take up to two years and that markets may be underpricing prolonged disruption risks, Reuters reported.
ETFs to Explore
Leveraged Energy ETFs
Investors willing to take on higher risk and capitalize on prolonged uncertainty around diplomatic talks may consider increasing exposure to leveraged energy ETFs. However, given their structure, these instruments are best suited for short-term trading and require a disciplined investment horizon.
Investors can consider Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X ETF (GUSH - Free Report) , Direxion Daily Energy Bull 2X ETF (ERX - Free Report) and ProShares Ultra Energy (DIG - Free Report) .
Energy ETFs Worth Watching
For investors unwilling to take on the added risk of leveraged energy ETFs, a more prudent approach may be to maintain a long-term bullish stance on oil and stay invested in energy ETFs. This allows participation in a higher-for-longer price environment while avoiding short-term, headline-driven volatility.
Investors can consider State Street Energy Select Sector SPDR ETF (XLE - Free Report) , Vanguard Energy ETF (VDE - Free Report) and State Street SPDR S&P Oil & Gas Exploration & Production ETF (XOP - Free Report) .