Oil prices have remained under pressure this year due to global recession fears. United States Petroleum Fund, LP (USO – Free Report) is down 8.1% this year, while United States Brent Oil Fund LP (BNO – Free Report) lost around 7.2% last month (as of February 3, 2023). Frequent crude inventories are piling up amid Gulf Coast refinery woes and a slowdown in industrial activity has weighed significantly on oil prices.
The ISM US Manufacturing PMI fell to 47.4 in January, the lowest since May 2020 at the height of the covid pandemic and below market forecasts of 48. The reading marked the third straight contraction in the factory activity.
Additionally, electric vehicle giant Tesla has slashed prices by 13% to 20%. This decision will likely be followed by other EV producers and these cost advantages for EVs will put pressure on oil prices.
Can Oil Rebound?
The IMF’s January 2023 World Economic Outlook Update projects that global growth will fall to 2.9% in 2023 but increase to 3.1% in 2024. The forecast for 2023 is 0.2 point higher percent than projected in the October 2022 World Economic Outlook, but below the historical average of 3.8%. The IMF’s higher projection for global growth should bode well for oil prices. Additionally, China reopened its economy at the end of the Tiger year. It was a plus for economic activities.
The impending EU restriction on Russian petroleum products could drive up energy prices again. Although Brussels has proposed an interim version of the product price cap that sets a $100 per barrel limit on high-value products of Russian origin (diesel, jet, gasoline) and a $45 per barrel cap on low-value products (fuel oil, naphtha), the EU has yet to agree on the price cap, according to oilprice.com.
Production of crude oil from the Organization of the Petroleum Exporting Countries (OPEC) fell last month as the group seeks to keep world markets balanced. Production fell by 60,000 barrels per day to 29.12 million per day. OPEC agreed to maintain its forecast monthly oil production. OPEC and its allies agreed in October last year to cut oil production by 2 million barrels a day in November, the biggest OPEC+ cut since the 2020 COVID pandemic.
Against this backdrop, we highlight a few oil ETFs below that should be followed.
Focus on ETFs
Invesco DB Oil Fund (BOD – Free Report) – Down 5.1% last week
United States 12 months Oil Fund LP (USL – Free report) – Down 5.9% last week
ProShares K-1 Free Crude Oil Strategy ETF (OIL – Free report) – Down 6.0% last week
United States Petroleum Fund LP (USO – Free report) – Down 6.2% last week
iPath Pure Beta Crude Oil ETN (OIL – Free Report) – Down 6.4% last week
Want key ETF information delivered straight to your inbox?
Zacks’ free fund newsletter will update you weekly on top news and analysis, as well as the top performing ETFs.
Get it for free >>
