Industry Updates

Is oil heading to $100 a barrel? ETF investors seem to think so

Flows into Europe’s largest oil ETFs have surged in the past couple of weeks

Theo Andrew


The global energy crunch could reach new heights before the end of the year as investors bet on soaring energy prices that could see oil catapulted above the $100 a barrel barrier.

Signs investors were anticipating a bull run in oil markets have picked up over the last couple of weeks, with Europe’s largest oil exchange-traded commodity (ETC), the $1.4bn WisdomTree WTI Crude Oil ETP (CRUD), recording $204m inflows in the week to 22 September, according to data from Ultumus.

Last week, the $2.1bn iShares STOXX Europe 600 Oil & Gas UCITS ETF (EXH1) saw an asset influx of $320m as the energy crisis shows no signs of abating.

The level of the crunch was highlighted on Friday when it emerged the Chinese government ordered state-owned energy companies to secure fuel supplies “at all costs”, putting further pressure on energy prices, with Brent crude hitting $82 a barrel yesterday.

In a research note published last Friday, Bank of America (BofA) said oil prices could be propelled above $100 a barrel for the first time since 2014 as rising demand collides with fundamental underinvestment in commodities fuelling price rises.

Speaking at ETF Stream’s Big Call: Fixed Income ETFs event, Guy Foster, chief strategist at Brewin Dolphin, agreed oil could break through the $100 a barrel barrier: “We are going to see it because there is massive under investment in all of the ESG squeamish areas.”

“In recognising how difficult it is to forecast inflation, we have accepted that anything in the mining and resource related sectors – but particularly the energy complex – is going to experience some big peaks and troughs.”

Inflows into energy ETFs have been reflected in the performance over the past month while last week was the strongest for the Bloomberg value factor relative to growth since May, with the Bloomberg US Pure Value Portfolio returning 1.7% in the week ending 1 October.

The 12 best performing Europe-based ETFs over the past month are all in the energy sector led by the $304m iShares US Oil & Gas Exploration & Production ETF (IOGP) which has returned 19.8%, followed by the iShares S&P 500 Energy Sector UCITS ETF (IESU) and the SPDR S&P US Energy Select Sector UCITS ETF (ZPDE) at 14.9% and 14.6%, respectively.

Over the past 12 months, the story has been much the same as the value turn last November boosted investor sentiment towards the sector.

IOGP has returned 109.7% over the past year followed by L&G US Energy Infrastructure MLP UCITS ETF (MLPI) (90.1%), IESU (83.8%), ZPDE (83.6%) and Invesco Energy S&P US Select Sector UCITS ETF (XLES) (83.4%).

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