President Biden may be risking an oil price war.
Just days after President Biden announced the release of 50 million barrels of oil from the U.S. strategic reserve (which is about two days of extra supply), the Saudis and Russians may pause any efforts to increase oil production in retaliation.
Here’s what we know.
OPEC+ nations were planning to increase oil supply by 400,000 per day, through 2022. That would boost supply by less than 1%, which is less than what President Biden was hoping for. To help, Biden will now release 50 million barrels of oil from the Strategic Reserve over the next few months. Unfortunately, 50 million barrels is maybe 2.5 days’ worth of supply.
To help even more, the UK, China, India, and Japan will release oil from their reserves, too.
Unfortunately, this could all backfire, sending oil prices even higher.
That’s because the Saudis and Russians may now cut supply in relation for this move.
“This raises the specter of a disruptive standoff that pits major producers led by OPEC+ against big consumers, led by the U.S.,” the Eurasia Group said, as quoted by Yahoo Finance. “Countervailing moves by each side are likely to lead to increased volatility, producing seesawing oil prices and added uncertainty.”
We’ll learn more next week when OPEC+ nations meet to either boost supply by 400,000 per day, or not. If they make no changes, great. If they lower output numbers, we could see higher highs in oil prices. Here’s hoping for the best.
Should oil prices run from here, energy ETFs could push higher, including:
SPDR Energy Select Sector ETF (XLE)
When we first highlighted the XLE, it traded at $52.70. It’s now up to $57.78, and could be headed to $65, near-term unless oil prices back off from highs.
The XLE ETF provides exposure to companies in the oil, gas and consumable fuel, energy equipment and services industries, as noted by State Street SPDR. Not only does an ETF allow for diversification, you can buy it for less.
Invesco DB Oil Fund (DBO)
DBO traded at $13.85 when we first mentioned it. It’s now up to $14.50, and could push higher with oil prices. This ETF seeks to track changes, whether positive or negative, in the level of the DBIQ Optimum Yield Crude Oil Index Excess Return plus the interest income from the Fund’s holdings of primarily US Treasury securities and money market income less the Fund’s expenses. It trades WTI crude futures.
iShares Global Energy ETF (IXC)
IXC was at $27. It’s now up to $28.72 and pushing higher. The iShares Global Energy ETF seeks to track the investment results of an index composed of global equities in the energy sector. Trading at $27, some of its top holdings include Exxon Mobil, Chevron Corporation, BP PLC, Total SA, and EOG Resources.
