A rosier outlook for economic growth and oil demand could fuel gains in energy sector-related exchange traded funds this year.
According to the Organization of Petroleum Exporting Countries’ recent monthly report, the global oil demand forecast was upwardly revised by as much as 200,000 barrels a day, the Wall Street Journal reports.
The oil cartel pointed to the newest $1.9 trillion fiscal stimulus bill in the United States and “the continuing recovery in Asian economies” for its improved outlook on the economy and oil markets.
However, OPEC did warn of short-term hurdles. The group believes we could face decreased global demand for the first half of the year because of the ongoing coronavirus restrictions, before the markets witness increasing demand for the second half of the year as “economic activity is expected to accelerate as the impact of the pandemic is expected to taper off.”
Crude oil prices have rallied 80% from their late-October lows and the gains have accelerated in recent weeks after OPEC maintained its supply curbs to further stabilize prices.
The cartel is also less worried about outside competition, notably from the United States, which previously challenged OPEC’s position as a major supply source. U.S. shale is expected to rebound to near its pre-coronavirus levels.
Looking ahead, OPEC forecasted a 160,000 barrel-per-day increase in U.S. supply for 2021, arguing that non-OPEC “upstream capital spending in 2021 is expected to remain well below 2019 levels, mainly due to the significantly lower projected investment in U.S. shale.”
ETF investors interested in gaining exposure to the rebound in the oil markets could consider energy sector-related ETF strategies such as the Energy Select Sector SPDR (NYSEArca: XLE), iShares U.S. Energy ETF (NYSEArca: IYE), and Vanguard Energy ETF (VDE).
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