Oil Rally Could Continue as Fuel Demand Rises — Check Out DBO

As fuel demand continues to soar and push oil prices higher, short-term investors and traders alike can take advantage of the Invesco DB Oil Fund (DBO).

“Oil prices rose more than 1% on Wednesday, extending gains for a third session, after U.S. government data showed that fuel demand climbed to its highest since the start of the COVID-19 pandemic,” a Reuters article said. “Brent crude rose $1.20, or 1.7%, to settle at $72.25 a barrel. U.S. West Texas Intermediate (WTI) crude gained 82 cents, or 1.2%, to end at $68.36 a barrel.”

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), and the fund invests in futures contracts in an attempt to track its corresponding index.DBO Chart

DBO data by YCharts

Traders Are Having a Gas With Higher Fuel Demand

Feeding into oil prices is the increased demand for fuel, especially during summer driving season. Fuel demand has reached a level not seen since the height of the pandemic last year.

“The four-week average for U.S. total product supplied, a proxy for fuel demand, soared to nearly 21 million barrels per day, its highest since March 2020, when governments first began to widely impose pandemic-related restrictions, U.S. Energy Information Administration data for last week showed,” the Reuters report added.

“Gasoline inventories have drawn as implied demand has rebounded, perhaps the last hurrah of summer driving season,” said Matt Smith, director of commodity research at ClipperData.

Another ideal use for DBO could be an inflation hedge as consumer prices continue to push higher along with oil and gas.

“This ETF provides exposure to light sweet crude oil (WTI), which is the most popular oil benchmark in the world,” an ETF Database analysis said. “Commodity exposure in a portfolio used to be a binary choice, either one invested in them, or they did not. Now, commodities have been proven as powerful inflation hedging tools with the power to generate powerful returns for an individual portfolio.”

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