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Is $100-a-Barrel Oil Possible? ETFs in Focus

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Oil prices have been seesawing lately with the OPEC meeting looming this week in Vienna. Just as the liquid commodity slumped below $65 a barrel on fears of an upcoming proposal by Saudi and Russia to hike output, the commodity soon recovered this week to reflect a small-than-expected boost in output. 

“People probably feared 1.5 million barrels a day, and now the talk is 300,000 to 600,000 barrels a day,” says Torbjorn Kjus, chief oil analyst at DNB ASA. Some are even eyeing a $100-per-barrel oil down the line thanks to shrinking output from Iran and Venezuela.

Bay Street money manager Eric Nuttall is also expecting oil to hit $100 at the end of the decade as oil inventories will likely touch their lowest level in history. Capability constraints in the pipelines would likely to put a cap on U.S. shale output growth.

Inside the OPEC Story

Two big players —Saudi Arabia and Russia — have been reportedly mulling over pumping up more oil. But Iran, Venezuela and Iraq will likely oppose the duo’s proposal to increase output. This could lead to a clash among OPEC partners.

Moreover, trade tensions between China and the United States increased where China would levy tariffs on some U.S. goods, including crude and gasoline. Overall, crude fell more than 10% last week from its 3-1/2-year highs in May on these news (read: Trump, Tariff & Geopolitics Lead May: 10 Top ETF Stories).

Whatever the case, we’ll have a clear idea after the Vienna meeting this week. Russian Energy Minister Alexander Novak may propose “an increase of as much as 1.5 million barrels a day” to make up for the supply loss from Venezuela and Iran. Saudi Arabia may offer to boost output between 500,000 and 1 million barrels a day.

Fund Managers Still Bullish on Crude

Amid such doldrums, hedge funds actually beefed up their position in Brent (+18 million barrels) in the week to June 12. The combined position in Brent and WTI jumped 16 million barrels, putting an end to seven weeks of drops totaling 302 million barrels, according to regulatory and exchange data.

WTI crude ETF United States Oil USO and Brent fund United States Brent Oil BNO gained more than 1.8% and 2.6% on Jun 18. Brent crude ETF should benefit more from the fund managers’ stance.

$100-a-Barrel Oil Looks a Tall Order

Agreed, oil consumption has been growing lately. But with several developed economies showing signs of weakness of late, investors should be wary of consumption growth in the oil patch. Meanwhile, trade war fear between the United States and some other countries may weigh on business confidence and global growth.

Now, it remains to be seen if lesser flow from Iran and Venezuela is able to push oil to the $100-level over the long term (read: 3 Country ETFs May Suffer as Oil Springs Higher).

ETFs in Focus

Against this backdrop, below we highlight a few regular energy ETFs that gained the most on Jun 18.

Invesco S&P SmallCap Energy ETF (PSCE - Free Report) Up 3.04%

VanEck Vectors Unconvnt Oil & Gas ETF (FRAK) Up 3.01%

S&P Oil & Gas Expl & Prod SPDR (XOP) – Up 2.2%

JHancock Multifactor Energy ETF (JHME) Up 2.04%

iShares US Oil & Gas Exploration & Production ETF (IEO) Up 2.01%

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