Oil price is rising as expectations are growing stronger that President-elect Joe Biden will provide support in recovering growth and energy demand in the United States. Weakness in dollar is also aiding the upside in oil prices. Notably, oil futures in New York steered past $53 a barrel after increasing 1.2% on Jan 19, according to a Bloomberg article.
All eyes are on President-elect Joe Biden’s inauguration day. In the meantime, Biden announced details of his $1.9-trillion stimulus plan, which is dubbed the American Rescue Plan. The relief package will extend the additional federal unemployment payment through September 2021, raising it to $400 per week. The new plan also includes $1,400 of direct payments to many Americans and extends the federal moratoriums on evictions and foreclosures through September, per a CNBC article.
The stimulus proposal also allocates $350 billion to support the state and local governments, sets aside around $70 billion for coronavirus testing and vaccination programs and also increases the federal minimum wage to $15 per hour, according to the same CNBC article. It is worth noting here that there are doubts whether Biden’s proposal will be approved in Congress.
Raising hopes for an additional stimulus package, Janet Yellen, President-elect Joe Biden’s designated nominee for Treasury Secretary and a former chair of the Federal Reserve urged to ‘act big’ during her appearance before the Senate Finance Committee on Jan 19, per a CNBC article. She requested the federal government to pass a large stimulus to boost the economy.
Some positive news is being circulated on the vaccination process also. Biden’s choice to lead the Centers for Disease Control and Prevention, Dr. Rochelle Walensky recently commented that she’s confident that the United States will be equipped with sufficient vaccine doses to meet the Biden administration’s aim of vaccinating 100 million people in 100 days. Her statement was quoted in a CNBC article.
Notably, Stephen Innes, the chief global market strategist at Axi, recently said that “OPEC+’s current supply discipline coalescing with the Biden administration’s overarching focus on public health and economic response to the Covid-19 pandemic suggests oil prices can go much higher,” per a Bloomberg article.
Is the Picture All Rosy?
Certain factors are making the near-term outlook for oil look a little disappointing. The renewed coronavirus cases in China prompted the government to dissuade citizens from travelling during the much-awaited Lunar New Year holidays. Other countries like Japan and Europe are also seeing coronavirus-led restrictions and lockdowns. Thus, the resurgence in the outbreak is expected to dent global oil demand.
Moving on, the International Energy Agency (IEA) also slashed its demand forecast for the first quarter of 2021 by 600,000 barrels a day in its monthly report, according to a Bloomberg article. Further, IEA cut its full-year forecast by 300,000 barrels a day. Going by this Paris-based agency, global fuel consumption is expected to increase 5.5 million barrels a day in 2021 after declining 8.8 million a day in 2020, per a Bloomberg article.
Oil ETFs That Might Gain
Against this backdrop, investors can take a closer look at the oil commodity space and its related ETFs (see all Energy ETFs here).
United States Oil Fund (NYSE:USO) USO
The United States Oil Fund’s investment objective is for the daily changes, in percentage terms, of its shares’ net asset value (NAV) to reflect the daily changes, in percentage terms, of the spot price of light sweet crude oil delivered to Cushing, Oklahoma, as measured by the daily changes in the Benchmark Oil Futures Contract (read: Oil & Energy ETFs Rallying on Output Cuts, Can the Rally Last?).
AUM: $3.60 billion
Expense Ratio: 0.73%
Invesco DB Oil Fund DBO
The fund tracks changes, whether positive or negative, in the level of the DBIQ Optimum Yield Crude Oil Index Excess Return plus the interest income from the holdings of primarily U.S. Treasury securities and money-market income-less expenses (read: Is it a Good Idea to Invest in Oil ETFs? Let's Find Out).
AUM: $471.4 million
Expense Ratio: 0.78%
United States Brent Oil Fund BNO
The fund tracks the daily price movement of Brent crude oil (read: 3 Reasons Why Commodities ETFs May Rally in 2021).
AUM: $369 million
Expense Ratio: 0.90%
United States 12 Month Oil Fund USL
The fund replicates with possible accuracy the price movements of West Texas Intermediate light, sweet crude oil.
AUM: $210.1 million
Expense Ratio: 0.82%
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Invesco DB Oil ETF (DBO): ETF Research Reports
United States 12 Month Oil ETF (USL): ETF Research Reports
United States Oil ETF (USO): ETF Research Reports
United States Brent Oil ETF (BNO): ETF Research Reports
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