Traditional energy commodities, including crude oil, gasoline, heating oil, natural gas, and ethanol, were the worst commodity asset class sector in 2022, falling nearly 22. In a January 12, 2024, Barchart article on the poor performance, I wrote:
Time will tell if the commodity asset class’s energy sector moves from laggard in 2023 to leader in 2024. Prices have dropped to attractive levels, with room for upside recoveries over the coming months.
Nearby WTI and Brent crude oil futures closed 2023 at $71.65 and $77.08 per barrel, respectively. The crude oil benchmarks have rallied since the end of last year.
In a January 19, 2024, Barchart article on the prospects for gasoline prices, I concluded:
I favor accumulating gasoline during the winter offseason, anticipating the seasonal rally in spring and summer. Meanwhile, the compelling bullish case for traditional energy commodities could mean crude oil, gasoline, and distillate product prices could soar over the coming months because of economic and geopolitical factors. The risk-reward dynamics at around the $2.1719 per gallon level favors the upside over the coming months.
Nearby gasoline prices have moved higher since January 19.
Crude oil prices are in bullish trends
After reaching a $68.57 per barrel low in mid-December 2023, NYMEX crude oil futures have made higher lows and higher highs.
As the chart highlights, NYMEX crude oil prices reached the most recent $80.85 high on March 1. The WTI futures gained 17.9% since the December 13, 2023, low and remain at the $77.36 per barrel level on March 11, 2024.
The active month May Brent futures chart shows the benchmark futures price rose 15.2% from $73.20 on December 13, 2023, to $84.35 on March 1. At $81.60 on March 11, Brent futures for May delivery remain closer to the recent high, and the bull trend remains intact.
Gasoline is at the beginning of a seasonal rally
Gasoline is the most ubiquitous crude oil product. Seasonality plays a critical role in gasoline prices as they tend to reach lows in winter and highs during the annual driving season in late spring and summer.
Since the December lows, seasonality has caused gasoline futures prices to outperform NYMEX WTI and ICE Brent futures. NYMEX RBOB gasoline prices for April delivery have rallied 20.2% from $2.1950 on December 13 to $2.6380 per gallon wholesale on March 1. At nearly $2.54 per gallon on March 11, gasoline remains in a bullish trend as the peak demand season approaches.
Geopolitical factors remain very bullish
Saudi Arabia recently extended the current production cuts through June 2024, increasing upward pressure on petroleum prices.
Meanwhile, as Russia is the most influential non-OPEC member, cooperating with production policy, and the war in Ukraine continues, the cartel’s output policies will likely push prices higher. Moreover, the conflict in the Middle East has escalated as Iranian-backed militias have increased the potential of a broader war in the region. The Persian Gulf, Straits of Hormuz, and other logistical petroleum choke points could cause sudden price spikes in the international crude oil futures markets.
The bottom line is that crude oil’s geopolitical landscape remains bullish in early March 2024.
Climate change initiatives will not hamper the demand over the coming months
Climate change initiatives and U.S. energy policy will be on the ballot for the 2024 Presidential election, which currently appears to be a repeat of the 2020 contest. Democrats favor addressing climate change by supporting alternative and renewable energy while inhibiting hydrocarbon production and consumption. Republicans favor a “drill-baby-drill” and “frack-baby-frack” approach for energy independence.
Meanwhile, since crude oil continues to power the world, the debate over climate change will be rhetorical over the coming months, with demand and supply fundamentals driving the price action until after the election.
One of the most significant factors for the path of least resistance for crude oil prices will be the strength or continued weakness in China’s economy. A recovery in the world’s most populous country, with the second-leading economy, could increase fossil fuel demand over the coming months.
USO and BNO are the crude oil ETF products
Futures markets contracts for the WTI and Brent benchmarks are the most direct route for investing or trading crude oil. Two ETF products track the short-term price action in the benchmarks.
At $73.03 per share, the U.S. Oil Fund (USO) had over $1.38 billion in assets under management. USO trades an average of over 3.85 million shares daily and charges a 0.81% management fee. April WTI futures rallied 17.9% from the December 13, 2023, low to the March 1, 2024, high.
Over the same period, USO rallied 19% from $63.84 to $75.94 per share.
At $29.74 per share, the U.S. Brent Oil Fund (BNO) had over $128.3 million in assets under management. BNO trades an average of over 539,000 shares daily and charges a 1.09% management fee. May Brent futures rallied 15.2% from the December 13, 2023, low to the March 1, 2024, high.
Over the same period, BNO rallied 18.2% from $25.92 to $30.64 per share.
USO and BNO have done an excellent job tracking the crude oil benchmark prices since late 2023. The trend is always your best friend in markets across all asset classes, and it remains bullish in the energy commodity that continues to power the world.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
