UAE Oil Attack: Brent Crude Hits 8-Year High, Funds Gain 20% in Jan, Should You Follow?

After the discovery of the new COVID-19 variant Omicron, international oil prices plummeted overnight, but have since gradually recovered their losses.

Unexpectedly, yesterday the capital of the United Arab Emirates, Abu Dhabi, was attacked by the Houthi armed forces in Yemen, causing fires at the airport and explosions in oil tankers. In this attack, the oil refinery was also a significant target. The situation in the Middle East has suddenly become tense, leading to substantial fluctuations in crude oil prices.

Last night, Brent crude oil reached $86.71, the highest intraday level since 2014, inadvertently setting an 8-year high.

We have discussed crude oil funds with everyone, which have risen by more than 20% in the past month. Should those who hold these funds take profits? And for those who haven't bought, is there still an opportunity to get in?

At the end of November 2021, when the World Health Organization announced the emergence of the new Omicron variant of the coronavirus, it caused a violent shock in the international financial market. At that time, the U.S. stock market experienced a rapid decline, and international crude oil also saw a significant drop. Overnight, Brent crude oil fell from above $80 to close to the $70 threshold, and continued to decline in the following days, returning to the $60 level.

In the nearly one and a half months since, as the news was gradually digested, the price of crude oil has slowly risen. It was under these circumstances that funds primarily investing in crude oil ETFs achieved good returns. A few days ago, we specifically compared crude oil funds from several companies, including GF, Noah, and Southern.

After the news from the Middle East yesterday, some international investment banks released the latest forecasts, suggesting that this year's oil prices could rise to $125, and there might even be a chance to reach $150 next year. That's quite exaggerated!

Is there really such a possibility? Does that mean that this type of fund still has a significant room for substantial increases?Now, it is widely believed that the price of oil will continue to rise, mainly due to the following factors:

Firstly, previously the United States, in conjunction with several other countries, released crude oil reserves to intervene in oil prices. However, this news has gradually been digested by the market, and it is predicted that there will be no further release of reserve crude oil. This factor that suppresses oil prices is slowly diminishing.

Secondly, it is forecasted that throughout 2022, the tight supply and demand situation for commodities will continue. In recent years, influenced by low oil prices, international capital has been relatively lukewarm in investing in crude oil extraction, and the production of crude oil is insufficient to support the expansion of the future economy.

Thirdly, in the investment market, both rises and falls can easily form trends. During this period, oil prices have clearly been more prone to rise than to fall, which further encourages more funds to participate in pushing up oil prices.

However, I would like to remind everyone that if the current international oil price is still within the range of $40 to $50, the above reasons can all serve as our rationale for investment. But now that the oil price has already reached $80, and even set a new high, we should pay more attention to bearish factors.

Firstly, we need to consider that the United States will raise interest rates this year, and the US dollar will further appreciate. Since oil prices are settled in US dollars, when the dollar appreciates, oil prices will inevitably be suppressed.

Secondly, the pandemic has not yet passed, and its impact on economic recovery still exists. It is even possible that new virus mutations may emerge in the future.

Thirdly, the high inflation in this period has already prompted central banks around the world to take action, reducing the injection of market liquidity, cutting debt, and raising interest rates. This will suppress corporate expansion and investment, and the demand for crude oil may also be curbed as a result.Undoubtedly, friends who have invested in crude oil funds during this period have already achieved considerable returns. However, no matter what, this type of fund is not sufficient to become a core fund and can only be invested in as a satellite fund.

If it is a satellite fund, then it can only be invested in through market timing strategies, and it is essential to set a profit-taking target. Once the profit-taking target is reached, one must resolutely exit the market.

Moreover, as a satellite fund, it is not suitable to invest a large proportion of funds, and one should never turn it into a heavily weighted asset.