Futures trading activity could portend upside ahead for oil prices, which is a positive sign for the energy sector. 2020 hasn’t been kind to the capital markets in general, but the latest jump could give ETFs like the Invesco DB Energy Fund (DBE) a boost.
DBE seeks to track changes, whether positive or negative, in the level of the DBIQ Optimum Yield Energy Index Excess Return™ (DBIQ Opt Yield Energy Index ER or Index) plus the interest income from the Fund’s holdings of primarily US Treasury securities and money market income less the Fund’s expenses. The Fund is designed for investors who want a cost-effective and convenient way to invest in commodity futures.
The Index is a rules-based index composed of futures contracts on some of the most heavily traded energy commodities in the world — light sweet crude oil (WTI), heating oil, Brent crude oil, RBOB gasoline, and natural gas. You cannot invest directly in the Index. The Fund and the Index are rebalanced and reconstituted annually in November.
Things Looking Up for Oil ETFs
Per a Wall Street Journal report, a “recent rise in oil prices continued on Tuesday, sending crude to its highest level since early March with investors wagering on a brighter economic outlook and higher demand for fuel.”
Traders are also optimistic for the future, betting on more gains for oil come 2021.
“U.S. crude-oil futures for January delivery advanced 4.3% to $44.91 a barrel, rallying for the sixth time in seven sessions and eclipsing their peak closing level from late August. Oil started the year above $60, briefly tumbled below $0 for the first time ever in April as coronavirus shutdowns crippled demand, then rebounded around $40 this summer,” the report added.
“It’s a total change of vibe,” said Robert Yawger, director of the futures division at Mizuho Securities USA. “Everything is much more positive now.”
It’s certainly been a roller coaster ride of volatility for oil this year, but bullish signals could be feeding into trader activity for the new year.
“In another sign analysts are more optimistic about future oil demand, U.S. crude futures that expire next summer now cost more than futures expiring later in 2021. That condition, known as backwardation, signals higher expected consumption and sends a bullish signal to investors who often have to sell contracts that expire sooner and buy longer-dated futures,” the report added.
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