Why I Think This Oil Stock ETF Is An Obvious Buy For 2022!

Gas prices hit an all-time high in December 2021 and oil recently hit $90 a barrel, the highest level since 2014. Given the supply and demand factors, I think the prices could rise further this year. If so, this exchange-traded fund (ETF) might be an obvious buy for me in 2022. I’m looking at iShares S&P Commodity Producers Oil & Gas UCITS ETF (LSE: SPOG).

Background

First, on the supply side, I see constraints. Russian-Ukrainian tensions persist and the fallout from any escalation could be major. Russia is a huge oil exporter. If there is a barrier to supply, the world price of oil will rise. In terms of gas, Russia is also a major supplier of gas to Central Europe and large quantities are transported via Ukraine. Any type of supply problem can now have a global impact rather than just a European one. Indeed, the United States is now talking of helping Europe in times of shortage by exporting tankers from its own gas reserves.

Second, I expect an increase in demand this year. I think global economies will move towards full openness as we leave behind the Omicron variant of Covid. Hopefully, as we get back to normal, the number of travel and tourism will improve, commuting will increase, and generally oil demand will increase.

The ETF

The ETF I’m looking at aims to track the S&P Commodity Producers Oil & Gas Exploration & Production Index. I think this fund gives me the best opportunity to profit from rising commodity prices.

This index measures the performance of some of the largest publicly traded companies involved in the extraction and development of oil and gas around the world. Companies must also meet liquidity and market capitalization requirements to be included.

Looking at some of the holdings reveals some heavy natural resource companies. The two biggest holdings are Conoco Phillips and EOG Resources. The first is Alaska’s largest crude oil exploration and production company. The latter is involved in the discovery and processing of oil.

One risk to be aware of for this ETF is that in 2021 we have seen a push by governments around the world towards clean energy. It is possible that investors will continue to turn away from traditional energy companies and direct money towards the renewable energy sector. This would probably be negative for the fund.

Outlook

But overall, I’m optimistic. The earnings of the companies in this ETF are highly dependent on the price of oil and gas. As prices have risen in 2021, the price of the fund has increased by more than 70% and since the start of the year it has already increased by 10%.

Although nothing is certain, I believe that the prices of natural resources will increase further this year. In fact, I think oil could hit $100 a barrel. Looking back to 2014, when oil prices were last at this level, the fund was trading over 1,900 pence. If we get there again, it would mean an increase of over 30% from where we are today.

For this reason, I think for my own portfolio, iShares S&P Commodity Producers Oil & Gas UCITS ETF might be an obvious buy for 2022.

The post Why I Think This Oil Stock ETF Is An Obvious Buy For 2022! first appeared on The Motley Fool UK.

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Niki Jerath does not hold any of the shares mentioned. The Motley Fool UK has no position in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we give in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of information makes us better investors.

Motley Fool United Kingdom 2022


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