Oil Price Inches Higher as Demand Ramps Up

The oil price is in the spotlight as global leaders including U.S. President Joe Biden gather in Glasgow for the climate summit. At the COP26 summit, President Biden urged  OPEC to ramp up production of the fossil fuel in the short term despite the fact that climate change is on the agenda. Biden provided a reality check of sorts in his reasoning that the transition to renewable energy would not happen “overnight,” suggesting that any claims to the contrary are “not rational.”

Gas prices have been on the rise as well. The U.S. president pointed to the gas pump, saying that American households are feeling the impact of higher gas prices, especially “working class families” who must commute to work each day. He would like to see the oil supply increase to keep the global economy humming.

Oil ETF

Commodities have had a bull run this year, including oil, which closed higher today to $84 per barrel. The United States Oil Fund ETF (USO), which tracks WTI for “light, sweet crude oil,” also increased fractionally, to $57.52.  This oil ETF, which tracks futures contracts, is trading extremely close to its 52-week high price of $58.69 and boasts $2.6 billion in total assets.

USO may be trending higher with oil now, but considering that it is an ETF, it is not always precisely correlated to oil. Charlie Silver, CEO of Permission.io, is cited by MarketWatch as recalling how the U.S. Oil Fund ETF had severe contract rolling issues back in the spring of 2020.

Bullish Bets

If Wall Street analysts are right, the oil price has more runway for gains this year, which could lead to greater inflows into the oil ETF as investors look to capture the windfall.

Goldman Sachs has a $90 per barrel price target attached to oil as analysts look for market demand to recover to pre-pandemic levels, particularly in Asia. The bank is targeting 100 million barrels per day in production. Goldman analysts also see the possibility of “upside risk” on the oil price amid a trend known as gas to oil switching in which power plants shift to oil.

Something that could thwart oil demand is if prices surpass $110 per barrel, according to Goldman analysts. Otherwise demand will likely continue to outpace supply through at least Q1 2022.