Oil ETFs to Shine Bright on Improving Demand Scenario

·4-min read

The global demand outlook for oil is improving as coronavirus vaccines are being rolled out to tame the outbreak, which has disrupted the economic growth worldwide. Riding on the upbeat demand scenario, the global benchmark Brent recently closed at $75 a barrel, per a Bloomberg article.

The rally in oil prices was also supported by shrinking U.S. stock piles. Notably, a report by the American Petroleum Institute reflected that the U.S. crude inventories declined 8.54 million barrels last week (the largest drop since January), per a Bloomberg article.

In this regard, Howie Lee, an economist at Oversea-Chinese Banking Corp has commented that “It has been a direct path up for oil for a month now, fueled by optimism over rising consumption as global vaccination continues in earnest. We see the market in supply deficit for the rest of 2021, and may peak at $80 before year-end,” as mentioned in the same Bloomberg article.

Going on, U.S. investment bank Goldman Sachs also forecasts Brent crude prices to hit $80 per barrel this summer, per a Reuters article. According to the same article, the bank has commented that "Rising vaccination rates are leading to higher mobility in the U.S. and Europe, with global demand estimated up 1.5 mb/d (million barrels per day) in the last month to 96.5 mb/d."

Encouragingly, the International Energy Agency (IEA) projects demand for oil to increase above pre-pandemic levels by 2022-end, per a Yahoo Finance article. The organization projects a recovery in demand by 5.4 million barrels per day (bd) in 2021 on vaccine and global economic recovery optimism. Notably, there was an 8.6 million-bd fall in consumption in 2020 amid the pandemic. The IEA also forecasts an additional 3.1 million-bd rise in 2022, to average 99.5 million bd, per the same Yahoo Finance article.

The Organization of the Petroleum Exporting Countries and its production allies, together known as OPEC+, has added to the optimism in oil demand. It expects demand to rise on global economic recovery. Accordingly, the group has decided to raise production by 841,000 barrels per day (bpd) in July after increases in May and June, per a Bloomberg article.

Notably, OPEC+ continues to project a 6-million bpd rise in oil demand in 2021, per a Reuters article. The figure is equal to 6% of global consumption amid the economic recovery from the pandemic. It is important to note that OPEC+ had curbed oil production by a record of 9.7 million bpd last year amid the aggravating pandemic conditions waning oil demand, according to a CNBC article. Later, the cuts were revised to 7.7 million and finally 7.2 million from January 2021.

Meanwhile, OPEC+ decided in April to bring back 2.1 million bpd of supply to the market during May through July considering the improving demand outlook, per a Reuters article.The group’s production cuts are expected to come in at about 5.8 million by July, per the same CNBC article.

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: MLP ETFs At One-Year High: Can the Rally Sustain?).

AUM: $3.08 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 expenses (read: ETFs to Gain as Oil Rallies on Upbeat Demand Outlook).

AUM: $515.7 million

Total Expense Ratio: 0.78%

United States Brent Oil Fund BNO

The fund tracks the daily price movement of Brent crude oil (read: How Will Oil Service ETFs Fare This Earnings Season?).

AUM: $314.4 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: $192.2 million

Total Expense Ratio: 0.88%

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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
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