The global oil market witnessed a substantial rally recently, with prices reaching their highest levels since mid-April. This surge was aided by a combination of geopolitical tensions and extended output cuts by major oil-producing nations. Below we highlight the triggering factors in detail.
Attack on Russian Oil Export Hub: Ukraine’s naval drone attack on Russia’s port of Novorossiysk, a crucial hub for Russian oil exports on the Black Sea, heightened geopolitical tensions. This incident led to concerns about potential disruptions in oil supply from Russia, the world’s second-largest oil exporter, per a CNBC article.
Saudi Arabia’s Extended Production Cut: OPEC ace Saudi Arabia, the world’s top oil exporter, extended its voluntary crude oil output cut of one million barrels per day until the end of September. The initial cut was implemented in July through August and was later extended with the possibility of further extensions and deepening.
Market Reactions and Analyst Insights
The impact of these geopolitical events on the oil market was immediate, leading to a surge in oil prices. Josh Young, Chief Investment Officer at Bison Interests, a prominent oil and gas investment firm, predicts even higher prices due to reduced oil supplies. Young believes that over the next five years, oil prices will remain volatile and continue to rise, as quoted on the CNBC article.
On the other hand, Citi’s Ed Morse, the global head of commodity research at the bank, is relatively more optimistic about crude oil supplies after September. He anticipates that Saudi Arabia and Russia’s output will likely increase in October, leading to a potential price ceiling of $90 per barrel this quarter. Morse also cites limited demand growth, particularly in China, as a contributing factor to price stability beyond the current quarter.
Country ETFs to Gain/Lose
Against this backdrop, below-mentioned country ETFs may gain/lose.
ETFs to Gain
Norway – Global X MSCI Norway ETF (NORW)
Norway is among the top 10 nations famous for oil exports and with its comparatively low population, oil forms the key part of the country’s GDP. Per U.S. Energy Information Administration (EIA), Norway is the largest oil producer and exporter in Western Europe. The oil and gas sector makes up around 22% of Norwegian GDP and 67% of Norwegian exports.
Canada – iShares MSCI Canada ETF (EWC)
Canada is also among the world’s top 10 oil producers. The oil, gas and mining sector makes up about over a quarter of Canada’s economy. The country is one of the world’s largest producers of dry natural gas.
ETFs to Lose
India – iShares India 50 ETF (INDY)
India is almost entirely dependent on imports to back its oil needs. An oil price rally could thus be a major deterrent to India investing.
Turkey – iShares MSCI Turkey ETF (TUR)
Normally, Turkey’s 90% of the crude requirements are satisfied by imports. Hence, this country’s economy is also under tight spot. In any case, the country’s economy has been suffering from high inflation.
iShares India 50 ETF (INDY): ETF Research Reports
iShares MSCI Turkey ETF (TUR): ETF Research Reports
iShares MSCI Canada ETF (EWC): ETF Research Reports
Global X MSCI Norway ETF (NORW): ETF Research Reports
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