With oil ranking as one of 2019’s best-performing commodities, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, are surging.
Even with all the talk about the emergence of renewable energy sources in the U.S. and other developed economies, some market observers believe global oil demand will remain robust.
“Several large economies, including most developed nations, have shifted their economies from goods to services in the past decade or so,” reports Avi Salzman for Barron’s. “China has also said it wants to shift more towards higher-value services. That ought to reduce the need for oil in those countries, because even if workers are using oil to drive to work, they’re not participating in heavy industries powered by fossil fuels.”
Looking ahead, fundamentals are improving. The International Energy Agency projects consumption to increase each quarter of 2019 year-over-year, albeit at a slower-than-usual pace for the first quarter. Meanwhile, on the supply side, Saudi Arabia and other members of the Organization of Petroleum Exporting Countries have been cutting output. Additionally, U.S. sanctions on Iran and Venezuela have reduced further bets on international supplies.
What’s Next for Crude Oil Prices
Crude prices plunged 44% from a multi-year high in early October through the nadir on Christmas Eve as investors ditched energy in response to rising pessimism over global economic growth and potentially diminished demand across a range of commodities.
“In the late 1980’s, people consumed about two barrels of crude oil for every $1,000 in global GDP. By 2014, that had fallen to about 0.5 barrels. But since then, the rate of decline has just about flat-lined, falling just 1% per year over the past three years to 0.46 last year,” according to Barron’s.
Current OPEC compliance with production cut plans remains above their historical average, and it usually takes between two to three quarters for inventories to normalize after the cuts. While demand has yet to catch up to elevated supplies, rebounding economies in Europe and steady economic growth in the U.S. could prompt more upside for oil this year.
“Oil company stocks have been weak in part because of the belief that oil demand will drop considerably in the coming years as renewables become more important and governments seek to reduce carbon emissions,” reports Barron’s.
For investors sensing a buy opportunity in oil, here are 20 of the biggest exchange-traded funds (ETF) that cater to the commodity:
|Total Assets ($MM)
|United States Oil Fund
|ProShares Ultra Bloomberg Crude Oil
|VelocityShares 3x Long Crude Oil ETN
|Invesco DB Oil Fund
|VelocityShares 3x Inverse Crude Oil ETN
|ProShares UltraPro 3x Crude Oil ETF
|iPath Series B S&P GSCI Crude Oil Total Return Index ETN
|ProShares UltraShort Bloomberg Crude Oil
|United States 12 Month Oil Fund
|VelocityShares 3x Long Crude ETN
|ProShares K-1 Free Crude Oil Strategy ETF
|United States 3x Oil Fund
|ProShares UltraPro 3x Short Crude Oil ETF
|ProShares Daily 3x Long Crude ETN
|ETRACS S&P GSCI Crude Oil Total Return Index ETN
|DB Crude Oil Double Short ETN
|VelocityShares 3x Inverse Crude ETN
|iPath Pure Beta Crude Oil ETN
|ProShares Daily 3x Inverse Crude ETN
|United States 3x Short Oil Fund
Data via ETFdb.com as of April 26, 2019
Cyclical Sector in Jeopardy?
For investors looking for continued upside in U.S. cyclical sectors over defensive sectors, the Direxion MSCI Cyclicals Over Defensives ETF (NYSEArca: RWCD) offers them the ability to benefit not only from cyclical sectors potentially performing well, but from their outperformance compared to defensive sectors.
Conversely, if investors believe that U.S. defensive sectors will outperform cyclical sectors, the Direxion MSCI Defensives Over Cyclicals ETF (NYSEArca: RWDC) provides a means to not only see defensive sectors perform well, but a way to capitalize on their outperformance compared to cyclical sectors.
For more information on the energy sector, visit our energy category.