After pulling back significantly in recent days, crude oil and crude ETFs are surging higher on Monday, amid growing concerns over gas supply from Russia and a drop in the dollar, which is helping to overshadow demand worries related to a potential recession and China lockdowns related to the coronavirus.
Brent crude futures for September settlement climbed 4.3% to reach $105.53 a barrel in the early afternoon, having already rallied 2.1% on Friday.
Meanwhile, U.S. benchmark West Texas Intermediate (WTI) crude futures for August rallied $4.02, or 4.23% to crest $100 a barrel, after gaining almost 2% Friday as well.
Russian company Gazprom declared a force majeure on gas supplies to Europe, potentially heightening Europe’s supply issues. The company explained to customers in Europe that it cannot promise gas supplies because of “extraordinary” circumstances.
The news has been significant for analysts, who warn that such a move could see a spike in oil once again.
“Brent crude will find support at the end of the week if Russia does not turn the gas back on to Germany after Nord Stream 1 maintenance,” said Jeffrey Halley, a senior analyst at OANDA.
OPEC is affecting crude prices as well, with Iraq’s energy minister projecting that oil will continue to trade over $100 a barrel for the rest of 2022 and beyond, necessitating that the OPEC+ producers’ group control supply and demand.
The cartel, led by Saudi Arabia, has been uniting with Russia and other producers to slowly release supply as economies and energy demand recovered from the pandemic. OPEC+ is set to reverse its production curbs by the end of the summer while continuing to work together throughout 2022.
“I would like OPEC to retain its tools to measure and control output and maintain the existing balance,” Iraqi Oil Minister Ihsan Abdul Jabbar said in an interview. “We will discuss that with our partners.” OPEC+ meets again on August 3.
Meanwhile, although he remained upbeat in his speech, President Biden failed to accomplish meaningful change after meeting with Saudi leaders.
“The United States is invested in building a positive future of the region, in partnership with all of you — and the United States is not going anywhere,” Biden said, according to a transcript of his speech.
This could be good news for ETF traders who favor crude oil. Crude ETFs like the United States Oil Fund (USO) and the ProShares Ultra Bloomberg Crude Oil (UCO) could see potentially massive gains, while short ETFs like the ProShares UltraShort Bloomberg Crude Oil (SCO) could suffer with rising prices.
For investors looking for crude ETFs to play the run-up in oil, which has been fairly steady since November, the United States 12 Month Oil Fund (USL) and the iPath Pure Beta Crude Oil ETN (OIL) are two other funds to consider.
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