Amid geopolitical tensions in the Middle East, oil has been reaching new highs. But despite a recent price retreat, bullish momentum could still remain for a pair of ETFs.
In particular, the Invesco DB Oil Fund (DBO) and the Invesco Dynamic Oil & Gas Services ETF (PXJ) could continue rising as institutional demand increases its positions in black-gold-focused futures. In turn, this could benefit those aforementioned funds.
“Money managers significantly boosted their long positions in crude oil and other major petroleum product contracts in the weeks preceding Iran’s drone attack on Israel this past weekend,” an OilPrice.com report said. The report noted that since “geopolitical premium jumped before the attacks, raising buying in oil futures contracts, it’s not so surprising to see Brent Crude prices lingering just below $90 per barrel, without a spike in prices, since this weekend’s Iranian attack.”
If the price of the black gold continues rising, DBO offers investors convenient, cost-effective exposure to energy commodity futures. Its underlying index comprises futures contracts on light sweet crude oil (WTI), the U.S. crude benchmark.
Alternatively, PXJ offers another play on oil prices via companies that provide ancillary support to the industry. The fund’s underlying index comprises 30 U.S. companies that assist in the production, processing, and distribution of oil and gas. The index includes companies engaged in the drilling of the black gold and gas wells, manufacturing oil, and gas field machinery and equipment.
Both DBO and PXJ are benefiting from the rising oil prices thus far this year. The former is up just over 13%, while the latter has gained about 9%.
Oil Price Surge May Already Be Priced In
As mentioned in the OilPrice.com report, the surge in oil prices may have already priced in any escalation activity stemming from the Middle East. However, as prices start to retreat, it could present investors an opportunity to buy the dip before a major supply disruption takes place. In that instance, the black gold could continue to push even higher. In the meantime, price sensitivity will be heightened as more news comes out of the Middle East.
“Crude prices already included a risk premium, and unless the market faces a real disruption to supply, the risk of an upside spike towards USD 100 remains limited,” noted Ole Hansen, head of commodity strategy at Saxo Bank. “All eyes now on Israel, and their response, especially after President Biden urged restraint and after Iran said they do not intend to continue strikes.”
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