As Crude Inventories Fall, Oil Prices and 'DBO' Keep Climbing

The momentum for oil just keeps on building in 2021 as crude inventories fell recently, giving oil prices and the Invesco DB Oil Fund (DBO) even more strength.

“The American Petroleum Institute (API) on Tuesday reported a draw in crude oil inventories of 7.199-million barrels for the week ending June 18,” an report said. “Analysts had predicted a much smaller draw of 3.942 million barrels for the week.”

Oil prices boil down to basic supply and demand forecasting. API draw expectations were more generous than analysts’ expectations.

“In the previous week, the API reported a draw in oil inventories of 8.537 million barrels after analysts had predicted a draw of 3.290 million barrels,” the report added further. “Crude oil inventories have fallen by more than 29 million barrels since the start of 2021, according to API data, but are still up 27 million barrels since January 2020.”

DBO provides the perfect opportunity to get exposure to the current upside in oil prices. Furthermore, investors do not hold direct exposure to the heavy price volatility of holding positions directly in the commodity itself. 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 market value of crude oil. The single index Commodity consists of Light, Sweet Crude Oil (WTI). The fund invests in futures contracts in an attempt to track its corresponding index.

DBO 1 Year Performance

Increased Confidence in Oil Projects

The comeback in oil prices in 2021 is providing more confidence for oil-related projects. If oil prices can sustain their rally, more projects could be underway.

“Sustained higher oil prices are providing confidence for operators to start sanctioning more projects,” the article added.

“As prices hold steady or continue to rise, more projects are expected to be sanctioned during the year, coming mainly from Brazil, the Gulf of Mexico, Guyana and the North Sea,” the article said. “Between 2014 and 2019, the global average was 13 projects (greater than $1 billion in capex) sanctioned each year, which means 2021 is on pace to match pre-pandemic levels.”

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