Though WTI crude just saw its worst week in greater than two months, the oil trade can have more juice left within the tank.
Mirae Asset Securities’ Chris Hempstead told CNBC’s “ETF Edge” that he sees the Russia-Ukraine war fallout and OPEC+ oil cuts as key bullish catalysts for oil.
“When you have a look at the 33 energy ETFs which can be on the market, just about all of them, whenever you’re taking a look at their underlying components, have analyst buy rankings and obese rankings,” the firm’s director of ETF trading said. “Even with the rally within the energy sector, despite the remaining of the broader market taking place, the P/E multiples are still slightly low, and I believe that is perhaps what’s driving a part of the analyst community to purchase and be obese.”
Hempstead added that demand for oil and gas will increase when China — the world’s second-biggest consumer of oil — exits its Covid-19 lockdowns.
Jan van Eck, CEO of world investment manager VanEck, shares that bullish outlook.
“Nobody wants nuclear, nobody wants solar panels [and] nobody wants windmills, but we’d like it to do that energy transformation,” van Eck said. “That is going to be super supportive for energy over the following couple of years.”
Years of reset ahead?
After the decadelong bear market in commodities, van Eck sees multiple years of reset ahead resulting from supply constraints. He noted that oil services corporations are under pressure to maintain the identical level of production and be “disciplined” with natural depletion around 9% per 12 months.
At the identical time, based on van Eck, oil prices must stay high so OPEC+ members see incentives in investing additional wells.
It isn’t just exchange-traded fund investors seeing upside. On Friday, BofA Securities reiterated its advice to obese energy. The firm ranks energy as No. 1 in its “tactical sector framework.”
WTI Crude fell almost 8% this week to $85.61 a barrel. But it surely’s still up almost 14% 12 months to this point.