About one month into 2022, the energy sector is continuing its bullish run from last year, giving investors the opportunity to keep backing the momentum with oil and energy ETFs.
Oil prices also continue to push higher amid rising inflation, translating to higher fuel costs for consumers. The S&P 500 Energy index reflects the strength overall for the sector with a gain of close to 20% to start the new year.
Oil, in the meantime, hit more highs in last week’s trading session. The rise comes amid a volatile week for equities as major indexes whipsawed between losses and gains.
“Oil prices rose to a more than seven-year peak on Friday and recorded their sixth straight weekly gain as geopolitical turmoil exacerbated concerns over tight energy supply,” a Reuters article says. “On a weekly basis, the benchmark contracts notched their longest run of gains since October.”
A potential disruption for the energy sector could be the growing geopolitical tensions in Ukraine. That said, prospective oil investors may want to keep an eye out on the situation, but so far, there are no major disruptions just yet.
“So far there has been no supply disruptions in Eastern Europe, so guess the risk premium related to those tensions is not so high,” UBS analyst Giovanni Staunovo said.
2 ETFs to Play the Momentum
One ETF to play on bullish oil prices is the Invesco DB Oil Fund (DBO). DBO provides the perfect opportunity to get exposure to the current upside in oil prices.
Per the fund description, DBO seeks to track the DBIQ Optimum Yield Crude Oil Index Excess Return (DBIQ-OY CL ER), which is intended to reflect the changes in the market value of crude oil. The single index commodity consists of light, sweet crude oil (WTI), and the fund invests in futures contracts in an attempt to track its corresponding index.
A more broad play in the energy sector is available with the Invesco DB Energy Fund (DBE). DBE seeks to track the DBIQ Optimum Yield Energy Index Excess Return, which is intended to reflect the changes in the market value of the energy sector.
The index commodities consist of light, sweet crude oil (WTI), heating oil, Brent crude oil, RBOB gasoline, and natural gas. The fund invests in futures contracts in an attempt to track its index.
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