Tighter oil supply should help prop up prices heading into 2022, which should make a bullish case for higher oil prices with the new year around the corner.
The post-Thanksgiving rout in the stock market also spilled over into oil prices. Since then, prices have stabilized and are continuing their upward trajectory.
“U.S. oil demand and inventories have offered support to oil prices in recent months and, volatility excluded, have continued to do so, with stocks below the five-year average for this time of the year,” OilPrice.com says.
“While oil prices have swung in recent weeks between as high as $85 in late October to below $70 in late November amid fears of Omicron denting demand and a looming oversupply, lower-than-usual American stockpiles have been one constantly bullish theme for oil, especially the U.S. benchmark, WTI Crude,” OilPrice.com adds.
COVID-19 continues to be a wild card in the capital markets, injecting fears of more supply chain disruptions moving forward. However, less supply could be the tailwind that helps to rocket oil prices back to elevated levels again.
“New containment measures put in place to halt the spread of the virus are likely to have a more muted impact on the economy versus previous Covid waves, not least because of widespread vaccination campaigns. As a result, we expect demand for road transport fuels and petrochemical feedstocks to continue to post healthy growth,” IEA says in its latest Oil Market Report for December.
An ETF to Bet on Bullish Oil Prices
One way to get exposure to play bullishness on oil prices is to use an exchange traded fund (ETF) like the Invesco DB Oil Fund (DBO). The fund rose as high as over 80% for the year before falling down to a 52% YTD gain, which should open up buying opportunities.
As mentioned, 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 the 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.
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