Oil Could Be Poised For A Leap

Oil Could Be Poised For A Leap
Luke Suddards

over 1 year ago1 min

Mentioned in story

It looks like the energy market could be set to rise. The number of rigs drilling in the US has increased from a pandemic low of 200 to just over 600 – and despite oil prices trading around 2011-2013 levels when there was a rig count of about 1600, this time the supply response has been more muted. And because lower supply creates a supply-demand imbalance, that should send prices higher in turn. The other big drivers for oil also remain favorable, with geopolitics on a knife-edge and no sign of the OPEC+ cartel easing up on supply cuts. These factors should be enough to overcome a stronger or flat dollar. Lastly, rumors hit the wires early Tuesday morning suggesting that China’s looking into plans to leave its zero-Covid policy behind and re-open the economy: if they turn out to be accurate, China’s rejuvenated industry could prove another serious boon for oil prices.

If you’re keen on oil, you could take a look at ExxonMobil, which remains a market darling at the moment. Alternatively, if you want a basket of companies as opposed to a single name, the Energy Select Sector SPDR Fund (ticker: XLE; expense ratio: 0.1%) is one to consider. The Vanguard Energy ETF (ticker: VDE; expense ratio: 0.1%), on the other hand, provides more diversified exposure and includes a greater number of mid-sized players, reducing the importance of big dogs like Exxon and Chevron. And although oil companies’ shareholders got a few jitters on Monday evening, when Biden floated a “windfall tax” on energy firms, its prospects for passing are looking slim. In fact, if you’re eager, these price dips could be the perfect opportunity to board what’s looking like an oil-fueled gravy train at a reduced fare.

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