After three years of low prices with supply consistently exceeding demand, crude oil prices have risen significantly this year. The prices are currently hovering around $120 a barrel. Continued sanctions on Russian oil exports, increasing energy consumption in China due to the lifting of COVID-19 lockdowns in the nation, and limited room for further releases from U.S. national reserves are some of the critical forces that could drive oil prices higher in the upcoming months.
Goldman Sachs has forecast that the Brent crude will climb to $140 a barrel in the next quarter, up from its previous estimate of $125 a barrel. Consumers are already paying through the nose for gasoline, with gasoline prices rising over $5 a gallon in many states. Rising crude oil prices would mean consumers would have to pay more for gasoline.
Goldman Sachs believes that crude oil prices need to get so expensive that demand for it falls drastically, causing a bump in production and leading to the reversal of prices. GS strategists said, “We believe oil prices need to rally further to normalize the unsustainably low levels of global oil inventories, as well as OPEC and refining spare capacities.”
iShares U.S. Oil & Gas Exploration & Production ETF (IEO)
IEO is an exchange-traded fund launched by BlackRock, Inc. The fund invests in shares of companies operating across energy, oil, gas, and consumable fuels, oil and gas exploration, and production sectors. It seeks to track the performance of the Dow Jones U.S. Select Oil Exploration & Production Index.
IEO has $1.08 billion in assets under management (AUM). Its major holdings include ConocoPhillips (COP), with a 17.53% weighting in the fund, followed by EOG Resources, Inc. (EOG) at 9.42%, and Marathon Petroleum Corporation (MPC) at 7.23%. It currently has 53 holdings in total.
Over the past three months, the ETFs fund flow has been $245.34 million. In addition, IEO’s 0.42% expense ratio compares favorably to the 0.46% category average. Over the past nine months, the fund has gained 61.9% to close the last trading session at $86.67.
IEO’s POWR Ratings reflect this promising outlook. The ETF has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
United States Oil Fund, LP (USO)
USO exchange-traded fund was launched and managed by the United States Commodity Funds LLC. The fund invests in the commodity markets of the United States. It uses derivatives such as futures contracts to invest in a light, sweet crude oil, other types of crude oil, diesel-heating oil, gasoline, natural gas, and other petroleum-based fuels. It seeks to track the daily changes in the spot price of the light, sweet crude oil traded on the New York Mercantile Exchange.
USO has a $3.12 billion AUM. Its major holdings include Sweet Light Crude Oil (WTI), having a 100% weighting in the fund. It currently has one holding in total.
The ETF’s 0.79% expense ratio compares to the 0.83% category average. USO has seen $128.48 million in net inflows over the past five days. USO has gained 79.8% in price over the past year to close the last trading session at $87.66.
It’s no surprise that USO has an overall A rating, equating to Strong Buy in our proprietary POWR Ratings system.
Invesco DB Oil Fund (DBO)
DBO is an exchange-traded fund launched by Invesco Ltd. and managed by Invesco Capital Management LLC. It invests in the commodity markets. The fund uses futures contracts to invest in light sweet crude oil. It seeks to track the performance of the DBIQ Optimum Yield Crude Oil Index Excess Return.
With $555.90 million AUM, DBO’s major holdings include Mutual Fund (Other) with a 60.05% weighting in the fund, followed by United States Treasury Bills 0.0% 01-DEC-2022 at 8.75%, and Invesco Treasury Collateral ETF (CLTL) at 7.77%. It currently has eight holdings in total.
The ETF’s 0.77% expense ratio compares favorably to the 0.83% category average. Over the past year, the fund has gained 58.9% to close the last trading session at $20.09.
DBO’s POWR Ratings reflect solid prospects. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
In addition, DBO has an A for Trade, Buy & Hold, and Peer grade. In the Commodity ETFs group, DBO is ranked #10. Get all the DBO ratings here.
IEO shares were trading at $85.56 per share on Friday morning, down $1.11 (-1.28%). Year-to-date, IEO has gained 41.44%, versus a -22.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More…