Oil ETFs Gained 4% Last Week: Can the Rally Last?
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Oil prices just logged a weekly advance, as concerns over weakening demand in China were outweighed by signs that the United States could impose stricter sanctions on Russian crude supply. Brent crude traded above $74 per barrel after a nearly 5% rise last week, while West Texas Intermediate (WTI) hovered near $71.The United States and its allies are considering lowering the price cap on Russian crude to tighten sanctions further and curb Moscow’s war funding. This could influence the supply-demand balance and raise the oil prices.OPEC+ AdjustmentsOPEC+ member United Arab Emirates (UAE) plans to reduce crude exports early next year to enforce stricter compliance with the producer group’s production targets. Abu Dhabi National Oil Co. announced cuts to crude allocations for certain customers in Asia. This move reflects OPEC+ efforts to manage output and stabilize the market amid emerging oversupply concerns.Oil Market Tied Between Geopolitical Risks and Market Glut ExpectationsOil markets have been trading in a narrow price range since mid-October. While geopolitical tensions add upward pressure on prices, expectations of an oversupplied market next year and a dim outlook for China’s economy have subdued gains.China's Weak Demand SignalsChina’s crude refining activity fell to its lowest level in five months, with additional declines seen in key economic indicators like home sales and consumer spending. The data from the world’s largest crude importer has weighed on prices recently.Can the Oil Market Bounce Back?The bearish sentiment remains strong, with Brent predicted to drop to $70 per barrel in 2024. Commonwealth Bank of Australia analyst Vivek Dhar attributed this tepid outlook to anticipated oversupply as non-OPEC+ production growth outpaces global oil consumption, as quoted on Bloomberg.But then, China’s regulators pledged over the weekend to take additional measures to bolster the economy, supporting oil prices. In early December, China’s top leadership adjusted its monetary policy stance for the first time since 2011, signaling a significant shift in response to mounting economic pressures and potential geopolitical tensions (read: China May Ease Monetary Policy After 14 Years: ETFs in Focus).The Politburo, the Communist Party’s 24-member governing body led by President Xi Jinping, announced it will now adopt a “moderately loose” monetary policy — a term China last used in 2010 when it sought to support a recovery from the global financial crisis.If China eases its monetary policy materially, the demand outlook could improve and oil prices may see a surge. However, other factors do not appear favorable for a sustained oil price rally.Price Outlook for 2025Morgan Stanley expects Brent Crude prices to average $70 per barrel in the second half of 2025, up from a $66-$68 a barrel range expected previously, after OPEC+ delayed the start of its output increase and slowed the pace of the output hikes into 2026.The OPEC+ alliance recently decided lately to delay the beginning of the easing of the 2.2 million barrels per day (bpd) cuts to April 2025, from January 2025. The group also extended the period in which it would unwind all these cuts until September 2026.Meanwhile, EIA expects the Brent crude price to be $74 per barrel in 2025 roughly the same as in 2024, as oil markets are projected to be relatively balanced on an annual average basis. The monthly Reuters poll of dozens of analysts revealed at the November-end that Brent Crude oil prices are expected to average $74.53 a barrel next year. The experts downgraded their oil price outlook for the seventh successive month in November.Oil ETFs in Focus Against this backdrop, investors can keep a track of the oil-based exchange-traded funds (ETFs). United States Oil Fund LP USO is up 9.8% this year, Invesco DB Oil Fund DBO has gained 4.6%, ProShares K-1 Free Crude Oil ETF OILK has gained about 5.8% and United States 12 Month Oil Fund LP USL is up 6.2%. Want key ETF info delivered straight to your inbox?Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.Get it free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report United States Oil ETF (USO): ETF Research Reports Invesco DB Oil ETF (DBO): ETF Research ReportsTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks
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