Oil prices have posted strong gains in the last few trading sessions as wildfires in Canada’s oil sands have sparked fresh supply concerns. Last month, a strike in Kuwait had led to supply outage and sparked a rally in oil.
Despite the recent gains, the oil market remains oversupplied. Indeed, the long-term outlook for oil depends on supply and demand factors. The good news here for oil producers is that the market is expected to rebalance sooner than anticipated. In recent weeks, analysts have noted that the drop in production in the U.S. should lead to a rebalancing of the oil market, especially if demand remains robust.
The improving outlook for oil market and prices augurs well for junior oil & gas companies. Shares of junior oil & gas companies have been particularly hit hard by the sharp pullback in oil prices since mid-June 2014. But with the outlook now improving, investors can consider taking a position in them.
Canadian investors can get exposure to junior oil exploration companies by going long on the BMO Junior Oil Index (ETF) (TSX: ZJO). The fund has been designed to replicate the performance of the Dow Jones North America Select Junior Oil Index.
