Investors who bought stocks during the COVID-19 market crash in 2020 have generally experienced some big gains in the past two years. But there is no question some investments performed better than others along the way.
Oil's Bumpy Ride: While the stock market has been extremely strong since it bottomed on March 23, 2020, the United States Oil ETF (NYSE:USO) has surprisingly outperformed the market.
The unprecedented pandemic-driven U.S. economic shutdown in 2020 created a devastating environment for oil investors. Not only did demand for oil plummet, U.S. storage capacity was near 100%.
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Incredibly, the price of WTI crude oil futures contracts dropped into negative territory in April 2020 as contract holders were literally paying people to take delivery of crude oil.
At the beginning of 2020, the USO fund was hovering around $12.80. By April, the collapse of oil prices sent the fund tumbling as low as $2.11 on April 28, 2020. The following day, the USO fund completed a one-to-eight reverse stock split to get its price back up above $17.
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Not surprisingly, oil caught a bid in the second half of 2020 as the economy began to open back up. By the end of the year, the USO fund was back up to $33.01
Oil In 2022, Beyond: Years of underinvestment in the U.S. oil and gas industry coupled with booming economic reopening demand sent oil prices surging in the second half of 2021, but few traders could have foreseen the perfect storm that would send oil prices skyrocketing in early 2023. U.S. inflation at multi-decade highs has boosted commodity prices across the board in 2022. However, Russia's invasion of Ukraine has also removed Russian oil and gas from large parts of the global market, further pressuring supplies and raising prices.
WTI crude oil prices are now back up to around $101 per barrel, and the USO fund is trading at $77.08.
The oil rally has been impressive even compared to the post-pandemic stock market boom, and investors who bought the USO ETF at its pandemic low and held on have managed to generate a huge profit on their investment. In fact, $1,000 in the USO ETF bought on April 28, 2020, would be worth about $4,327 today.
If inflation rates continue to stay elevated and the war in Ukraine drags on, investors will be paying close attention to how oil prices react and whether or not WTI prices could be on their way to new all-time highs.
