As Oil Keeps Rising, 'OIH' Posts Another Huge Week

Rising oil prices are helping the VanEck Vectors Oil Service ETF (OIH), which is up 30% year-to-date. The ETF ended last week’s trading session with a 10% gain thanks to fears of rising inflation.

“Oil extended gains from its highest close in more than a year on a slump in U.S. oil inventories and a broader lift to the reflation trade taking place across global markets,” a World Oil article said. “Futures in New York rose near $63 a barrel. Inventories of U.S. oil have fallen by 40 million barrels over the last three weeks, with cold weather demand for heating fuels offsetting a rise in gasoline and crude stockpiles.”

OIH seeks to replicate the price and yield performance of the MVIS® US Listed Oil Services 25 Index. The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index.

The index includes common stocks and depositary receipts of U.S. exchange-listed companies in the oil services segment. Such companies may include small- and medium-capitalization companies and foreign companies that are listed on a U.S. exchange.

OIH Chart

Is Oil Heading Toward $100 a Barrel?

The energy sector is rallying after a 2020 that saw oil prices hit below $0. Now, the futures market is portending future strength for oil prices.

“The futures curve is continuing to indicate tightness,” the World Oil article said further. “The market is in a backwardation of almost $6 a barrel for the next 12 months, a structure that indicates scarce supplies. There have even been tentative mentions of crude hitting $100 a barrel again in the longer term.”

Oil was also helped by Saudi Arabia’s surprise supply cut at the beginning of 2021. Before that, prices began to rally after the Covid-19 vaccine news hit the markets.

“Oil is set for a fourth monthly gain after a pledge by Saudi Arabia to deepen output cuts accelerated a rally triggered by Covid-19 vaccine breakthroughs,” the article continued. “While there’s been a raft of bullish calls on the outlook recently, the market is facing a possible supply increase in April from OPEC+, which meets next week to discuss its strategy with key members again differing on the way forward.”

“(Oil) continues to benefit, just like copper, from expectations that supply will be kept tight while demand continues to recover,” said Ole Hansen, head of commodities strategy at Saxo Bank. “The question remains how much is speculative and how much is real demand driving the price higher at this stage.”

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