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Oil ETFs Surge on Strong Data

Eric Dutram

Oil is off to a great start in August, continuing the solid trend that the commodity saw in the previous month. The commodity was a big beneficiary of the recent Fed meeting, as expectations for a reduction in QE were seemingly pushed out a little longer.

This expectation helped crude oil to remain firm in the final trading day of July and set the stage for more positive moves, depending on how the latest burst of data played out.

Data Bonanza

This latest round of economic reports and news didn’t disappoint, and suggested to many that the economy was continuing to recover, albeit slowly. Plus, the data was favorable in a number of economic sectors, meaning that the recovery isn’t isolated in any one segment (also see Gasoline ETF Surges on Refinery Issues).

In particular, the jobless claims were quite good, coming in at 325,000, easily beating expectations of 345,000. This continues the trend in this space, and it was actually the lowest level of claims since before the crisis began.

Meanwhile on the industrial side, figures also beat expectations for both the PMI Manufacturing Index and the ISM. The PMI edged out the consensus and rose to 53.7 (from 51.9 in the last reading), while the ISM index easily beat, rising to 55.4 from the prior reading at 50.9.

The combination of these figures was a boon for oil, as it suggested that demand would increase. That is because more consumers are seemingly back to work, while industrial activity is picking up steam, signaling that both of these corners of the economy are surging higher and will likely require more oil in the near future.

Market Impact

The combination of solid economic reports and the prospect of an accommodative Fed helped to push front month crude oil futures up roughly 2.4% on the session. This moved prices near the $107.5/bbl. mark, putting the commodity within striking distance of its 52 week high (Read Bet on an Oil Surge with these 3 ETFs).

The jump in crude also had a big impact on oil ETFs for the session, helping to power these to gains as well. These ETFs might be easier plays for the ‘average’ investor that dealing directly in the futures market, while still offering similar exposure. Below, we have highlighted a few of the oil funds that are the most impacted by the solid data reports, and could be interesting plays heading forward as well:

United States Oil Fund (USO)

This is the most popular oil ETF on the market, as it has over $700 million in assets, and does volume of roughly 5.5 million shares a day. The ETF has added about 15.3% over the past three month time frame and it is up roughly 2.4% to start off August.

PowerShares DB Oil Fund (DBO)

This ETF also gives investors exposure to crude oil, and it also sees solid volume and assets under management. The product tracks a slightly different benchmark though—with a focus on contracts further out on the curve—so it has underperformed, adding just 6.7% in the past three months and roughly 1% today (though it could outperform if short term contango issues creep up).

iPath S&P GSCI Crude Oil Index ETN (OIL)

This is an ETN option for oil investors, tracking a spot price benchmark of WTI crude. This product is up roughly 16.8% over the past three months, while it has added about 2.4% to start off August (see ETFs vs. ETNs: What’s The Difference?).

Bottom Line

Oil is almost back at 52 week highs thanks to solid data reports and hopes for a dovish Fed. The commodity was up big to start August and some are hoping that this trend can continue.

If it does, investors may want to consider any of the aforementioned oil ETFs for exposure. These could be solid ways to play the trend, and may be better performers than some of the sluggish oil companies for a continued run in crude oil prices in the near term.

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Read the analyst report on OIL

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