Following a summer of cooling prices, oil is back in focus as an inflation issue. West Texas Intermediate (WTI) reached $92 a barrel on Sunday, up from $77 just two weeks prior.
In the exchange-traded fund space, the VanEck Oil Services ETF (OIH) has risen 36% this year. The fund is mainly comprised of big oil names Schlumberger, Halliburton and Baker Hughes.
“We love [oil] as a multiyear play,” Jan van Eck, CEO of VanEck, told CNBC’s Bob Pisani on Monday on “ETF Edge.” “But there are major supply constraints to the energy markets.”
Van Eck, who manages the VanEck Oil Services fund and many other commodity ETFs, noted that the minimum barrel price of $80 set by OPEC+ is comparable to a “put price.”
“Just like we had the Fed put over the last decade, I think we’ve got a price put on oil,” he said. “And that will help the energies get revalued over time.”
But the global energy sector remains unstable, fueled by a precarious position in Europe. The S&P GSCI German Power (Yearly) has rallied 261% this year but was about 44% off its intra-year high on Thursday.
Fiona Boal, global head of commodities and real assets at S&P Dow Jones Indices, said that these types of shifts reflect the realities of a physical market trying to wean off Russian natural gas dependence.
“Arguably, natural gas ends up being the new oil, right?” Boal said in the same segment. “It’s the commodity that we spend the most time looking at. It’s the one that has the most direct impact on global economies.”
Boal explained that the price of natural gas is a key driver of the current economic situation in Europe, putting consumers and governments in a difficult position as they weigh rising costs with temporary alternatives.
“These so-called dirty energy sources really are unpalatable,” she said, referring to coal and nuclear energy substitutes.
While Germany is scheduled to cease nuclear energy production at the end of the year, Boal pointed out that the shift comes at a time when Europeans are dealing with the issue of being able to heat homes and keep businesses going during the winter.
“We’ve seen a shift back to some of those less desired energy sources,” Boal said. “But I would expect that that’s relatively short term. Particularly in Europe, we will see the move back towards investment in infrastructure and renewable sources.”