Strong demand can make oil services stocks exceptional again

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OService stocks and associated exchange-traded funds have had their moments at various times throughout 2021, but these assets limp to the finish line.

Even with recent lethargy, the VanEck Vectors Oil Services FNB (NYSEArca: OIH) is nearly 21% higher since the start of the year, and the oil services ETF king could build on that performance in 2022. Of course, oil services and OIH stocks have a well-deserved reputation as volatility – the result of close correlations with crude. More of the same could be in store next year, but at least there is some demand support.

“The recovery in demand for oil due to the easing of pandemic restrictions and OPEC + ‘s cautious supply policies have helped oil prices return to pre-pandemic levels,” a- he added. says Fitch Ratings. “However, the situation in the oil market remains very uncertain given the emergence of the Omicron variant of the coronavirus, which may lead to further blockages and travel restrictions, and may increase price volatility in the short term.”

The Omicron variant of the coronavirus pandemic is probably one of the reasons, if not the main, that the OHI is fighting at the end of the year. However, some experts speculate that Omicron, by spreading rapidly, is potentially not as bad as previous variants.

If this valuation turns out to be correct, the result could be a renewed appetite for riskier assets, especially oil and energy stocks. Additionally, Omicron’s docile could prompt more travel and fewer restrictions at tourist destinations, which could fuel higher oil prices. The case of the OIH in 2022 is a certain stability of the oil market.

“OPEC + has been the main factor in stabilizing the global oil market since the onset of the pandemic and is expected to remain so in the short term, but its policies may become less effective over time as some members of the alliance (for example for example, the United Arab Emirates and Russia) are planning to increase production to monetize their large reserves, ”according to Fitch.

The research firm notes that some major oil-producing countries will likely increase production next year to take advantage of rising prices, and US production is poised to continue to recover from the lows of the coronavirus pandemic. This could mean that favorable winds are shaping up for oil services stocks and the OIH.

“We expect demand to continue to improve in 2022, assuming the new lockdowns will be shorter and less severe than those in 2020. The recovery could be reversed if Omicron or other potential new variants prove to be clear. more infectious or dangerous, leading to new, prolonged synchronized blockages, ”concludes Fitch.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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