After another falloff in the first half of year on renewed concerns over the extended global supply glut, oil exchange traded funds may be beginning to stabilize and potentially turn around.
“Commodities going into the second half of the year will be more attractive than the first half,” Maxwell Gold, Director of Investment Strategy at ETF Securities, told ETF Trends in a call.
Gold is pointing to improving data and fundamentals that can drive greater demand for raw resources to fuel the global economic engine. For instance, we are witnessing increased manufacturing, which can support the cyclicality of energy and stabilization of global prices. Notably, the rising demand among emerging market economies, especially China, can help drain the global fuel glut.
International Energy Agency data revealed China imported 8.55 million barrels per day of oil in the first half of the year, or up 13.8% year-over-year, which has made the emerging economy the largest crude importer, even ahead of the U.S.
While the Organization of Petroleum Exporting Countries are skeptical that demand growth can put a dent into the ongoing supply glut, the oil cartel has made steps to cut down supply to bolster prices. OPEC has already promised to curb production by 1.2 million barrels per day between January this year and March 2018.
“The expected global economic backdrop remains broadly supportive for the energy sector in coming years. Demand for oil remains robust driven by further recovery of global growth accompanied with building inflationary pressures, while efforts to reduce the global supply glut are underway,” Gold said in a research note. “These changes in supply side fundamentals are beginning to unravel and impact some of the traditional drivers of energy returns including the US dollar (USD), interest rates, and curve structure.”
Looking ahead as we head toward the height of summer driving, U.S. demand may also help support pricing, especially given the recent selloff. Investors seeking an alternative asset to traditional stocks and bonds may consider commodities like oil during the traditional summer doldrums.
“It opens commodities up for attractive valuation, compared to equities and fixed-income, where valuations look stretched,” Gold said.
Related: Oil Services ETFs Look for Relief
Investors interested in gaining exposure to the crude oil market can take a look at the recently launched ETFS Bloomberg Energy Commodity Longer Dated Strategy K-1 Free ETF (NYSEArca: BEF). BEF tries to provide long-term capital appreciation designed to exceed the performance of the Bloomberg Energy Index 3 Month Forward Index, which tracks movements in the prices of rolling positions in a basket of energy commodity futures with a maturity between 4 and 6 months.
Additionally, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, have been popular plays to access WTI and Brent crude moves.
For more news on oil ETFs, visit our oil category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.