Last Friday, the Invesco DWA Energy Momentum ETF (PXI) jumped 3% on volume that was above the daily average, extending its year-to-date gain to a stellar 81.13%.
All the Invesco exchange traded fund did last week was soar 10.17%. Those statistics might imply that upside is limited from here for PXI, but the opposite may be true. With a slew of Wall Street banks ratcheting up oil price forecasts, PXI, which follows the Dorsey Wright® Energy Technical Leaders Index, could be poised for more upside in the fourth quarter.
Bank of America says that it’s possible that crude heads to $100 per barrel. The bank notes that high natural gas prices could renew use of crude, a cold winter could stoke increased oil consumption, and as global coronavirus travel restrictions ease, demand for jet fuel could increase.
“If all these factors come together, oil prices could spike and lead to a second round of inflationary pressures around the world… Put differently, we may just be one storm away from the next macro hurricane,” according to the bank.
Speaking of soaring natural gas prices, PXI is levered to that trend, thanks to holdings such as Range Resources Corp. (NYSE:RRC), Continental Resources (NYSE:CLR), and Devon Energy (NYSE:DVN), among others. That trio combines for over 10% of PXI’s roster.
Another factor working in PXI’s favor is that the world rapidly moved from being awash in abundant oil and natural gas supplies to facing shortages. OPEC+ nations meet on Monday, but analysts have little hope that this will bring much in the way of output increases.
Due to the coronavirus pandemic last year, many exploration and production projects cutting back on drilling activities and the world’s rapid shift to renewable energy are combining to constrain supplies. Additionally, net-zero pledges by energy companies and governments coupled with companies reining in spending are conspiring to crimp oil and gas supplies, inflating prices in the process.
“A multiyear run up in crude oil prices is now in the cards,” Bank of America said.
PXI has another advantage. It’s usually smaller energy equities that are most responsive to oil and gas prices in either direction. The Invesco ETF allocates 97% of its weight to mid- and small-cap stocks, according to issuer data.
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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.