Is This the Time for Crude Oil & Energy ETFs?
Oil prices soared lately on news of zero new cases in China, U.S. FDA's full approval of Pfizer-BioNTech Covid-19 vaccine and the moderate strength in...
Oil prices soared lately, breaking a seven-day losing streak – the worst since 2019. United States Oil Fund, LP (USO) added about 3% on Aug 24. News of zero new cases in China, U.S. FDA’s full approval of Pfizer-BioNTech Covid-19 vaccine, no new flare-up in taper talks and the moderate strength in the greenback and bargain hunting led to the oil price gains.
“The U.S. Dollar has retreated from recent highs, underpinning the commodity landscape broadly,” noted analysts at Blue Line Futures, as quoted on CNBC. Invesco DB US Dollar Index Bullish Fund UUP is off 0.6% in the past five days. The U.S. dollar moderated a bit and traders bet that the recent selling was overdone, as quoted on the CNBC article.
The Covid-19 vaccine from Pfizer Inc. and partner BioNTech SE received full approval from U.S. regulators on Aug 23, which many public health officials and vaccine experts hope will inspire hesitant populations to receive the vaccine.
China, the world’s largest crude oil importer, reported no new domestic coronavirus cases on Aug 23. This report acted as a tailwind for the oil market as it gave cues of demand recovery. Notably, China has levied new restrictions with its ’zero tolerance’ coronavirus policy, which is affecting shipping and global supply chains. The United States and China have also imposed flight-capacity restrictions.
WTI crude declined 4.3% past month while United States Brent Oil Fund, LP BNO lost 3.6%. Oil’s slide came due to a demand slowdown as the spread of the Delta variant of COVID-19 resulted in new lockdowns. Weak economic data out of China, which is the world’s largest crude importer, weighed on prices. An uptick in output from U.S. producers has also been a headwind. This made the commodity a bargain product.
Should You Buy Oil Now?
Against this backdrop, investors may be interested to know if oil should be bought right now. Along with many analysts, we too believe that the outlook for the energy products is not rosy. With the Delta variant causing a crisis globally, the outlook for energy stocks and ETFs is still bleak.
Goldman Sachs economists have raised the probability that the U.S. Federal Reserve will announce the start of tapering its bonds purchases in November, forecasting that the central bank will likely choose to dial back purchases by $15 billion then and at meetings that follow. If this happens, the greenback may gain strength and the broader commodity investing may fail.
Investors with a strong stomach for risks, may thus bet on the better performers in the space.VanEck Vectors Oil Refiners ETF CRAK (down 2% past month), iShares Global Energy ETF IXC (down 2.9% past month), Tortoise North American Pipeline Fund TPYP (down 3.3% past month) and iShares MSCI Global Energy Producers ETF FILL (down 3.7% past month) are some of the better performers in the space in recent times.
These funds yield 2.51%, 4.37%, 4.85% and 3.48%, respectively. Hence, from the current income perspective too, these energy funds look attractive.
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Invesco DB US Dollar Index Bullish ETF (UUP): ETF Research Reports
iShares Global Energy ETF (IXC): ETF Research Reports
United States Brent Oil ETF (BNO): ETF Research Reports
Tortoise North American Pipeline ETF (TPYP): ETF Research Reports
iShares MSCI Global Energy Producers ETF (FILL): ETF Research Reports
VanEck Vectors Oil Refiners ETF (CRAK): ETF Research Reports
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