Grab These ETFs to Ride the Latest Rally in Oil Prices
Take a look at some ETFs that can benefit from the latest rally in oil prices due to a variety of factors including easing Omicron variant concerns.
Oil prices have been rising since the beginning of 2022. In fact, Brent crude and U.S. West Texas Intermediate (WTI) have touched their highest prices since late November and might gain more than 6% in the first week of 2022. The upside in the crude oil prices is being triggered by a variety of factors like easing Omicron variant concerns, protests in Kazakhstan and outages in Libya causing supply shortages and less OPEC+ output.
For investors to come to a decision of parking their money in oil ETFs, let’s discuss each of these factors triggering the rally in detail:
Kazakhstan & Libya Pose Worries
Kazakhstan's oil-rich western regions have been witnessing protests since the state’s price caps on butane and propane were removed on New Year's Day, per a Reuters article. Considering the severity of the situation, the government declared a state of emergency as well. On the other hand, pipeline maintenance work has largely resulted in a decline in output in Libya to 729,000 barrels per day (bpd), down from a high of 1.3 million bpd last year.
Commenting on the current conditions, Rystad Energy analyst Louise Dickson has commented that "The upward jump in oil prices mostly reflects the market jitters as unrest escalates in Kazakhstan and the political situation in Libya continues to deteriorate and sideline oil output," as stated in a Reuters article.
OPEC+ Output Shortages
Increased output from the Organization of the Petroleum Exporting Countries, Russia and allies, collectively called OPEC+, is falling short from the growth in demand. There was a 70,000 barrels per day increase in OPEC in December from the prior month against the 253,000 bpd rise sanctioned under the OPEC+ supply agreement (according to a Reuters article).
Omicron Concerns Easing
In its latest decision, OPEC+ has decided to continue to pump more oil, which signals that Omicron may have a mild effect on fuel demand. OPEC+ has decided to increase its output collectively by another 400,000 barrels a day in February. The decision of OPEC+ has given an impetus to the crude price rally.
Notably, three studies from South Africa, England and Scotland demonstrated that the Omicron variant is milder than the other variants and has been observed to result in lower hospitalizations (per a CNBC article).
Moreover, the emergency use authorization (EUA) for Pfizer Inc.’s (PFE) antiviral COVID-19 pill, PAXLOVID, has relaxed concerns regarding Omicron to some extent. Pfizer can begin delivering PAXLOVIDin the United States on an immediate basis. In November, Pfizer had informed about signing an agreement with the U.S. government to supply 10 million treatment courses of PAXLOVID. The delivery will be completed in 2022. The FDA had also granted a nod to Merck’s antiviral pill for COVID-19.
Also, the coronavirus vaccine rollout is gradually helping control the spread of the outbreak across the globe. The optimism surrounding the gradual reopening of global economies and increasing demand is painting a rosy picture for cyclical sectors.
Oil ETFs That Might Gain
Against this backdrop, investors can take a closer look at the oil commodity space and its related ETFs (see all Energy ETFs here).
United States Oil Fund USO
The United States Oil Fund’s investment objective is for the daily changes, in percentage terms, of its shares’ net asset value (NAV) to reflect the daily changes, in percentage terms, of the spot price of light sweet crude oil delivered to Cushing, OK, as measured by the daily changes in the Benchmark Oil Futures Contract (read: Top ETF Stories of Fourth-Quarter 2021).
AUM: $2.44 billion
Total Expense Ratio: 0.83%
Invesco DB Oil Fund DBO
The fund tracks changes, whether positive or negative, in the level of the DBIQ Optimum Yield Crude Oil Index Excess Return plus the interest income from the holdings of primarily U.S. Treasury securities and money-market income-less fund’s expenses (read: Tough Time for Energy ETFs on Oversupply Concerns?).
AUM: $454.9 million
Total Expense Ratio: 0.77%
United States Brent Oil Fund BNO
The fund tracks the daily price movement of Brent crude oil (read: 5 ETF Areas Up At Least 70% in 2021).
AUM: $232.9 million
Total Expense Ratio: 1.13%
United States 12 Month Oil Fund USL
The fund replicates with possible accuracy the price movements of West Texas Intermediate light, sweet crude oil.
AUM: $142.4 million
Total Expense Ratio: 0.88%
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 >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
United States Oil ETF (USO): ETF Research Reports
Invesco DB Oil ETF (DBO): ETF Research Reports
United States 12 Month Oil ETF (USL): ETF Research Reports
United States Brent Oil ETF (BNO): ETF Research Reports
To read this article on Zacks.com click here.
Zacks Investment Research