As crude production ramps up, demand for supertankers has surged, dampening the outlook for oil prices but potentially signalling strength in the shipping industry-related exchange traded fund.
The Guggenheim Global Shipping ETF (NYSEArca: SEA), which tries to reflect the performance of the Dow Jones Global Shipping Index and holds high dividend-paying companies in the global shipping industry, includes a 35.7% tilt toward the energy sector. SEA is up 7.7% year-to-date.
A surge in supertanker demand has pushed up benchmark charter rates 57% in the past two weeks through May 20, Bloomberg reports.
Supporting the increased demand, the Organization of Petroleum Exporting Countries will have 485 million barrels of oil in transit to buyers at the start of June, the most this year, according to Roy Mason, founder of Oil Movements. Iraq, OPEC’s second-largest producer, is also expected to raise exports to a record 3.75 million barrels per day. Goldman Sachs Group estimates that the world is pumping 1.9 million barrels a day more than is required. [Oil ETFs: Iraq, OPEC Maintaining Higher Exports]
“Supply of oil continues to build,” Paddy Rodgers, the chief executive officer of Euronav NV, said in the article. “All of this oil needs to go somewhere.”
Additionally, some market observers point to the 20 million barrels of oil sitting on ships as another indicator of the ongoing glut – traders have stored oil on ships, betting on higher prices in the future. [Shipping ETF Sees Tailwind from Oil Storage Demand]
Meanwhile, oil prices have been falling off after hitting a recent high in early May. the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and redeemed dipped 1.8% over the past week while the United States Brent Oil Fund (NYSEArca: BNO) fell 3.8%.
WTI crude oil futures were trading around $57.9 per barrel and Brent crude futures were hovering around $62.8 per barrel.
Guggenheim Global Shipping ETF
For more information on the shipping sector, visit our shipping category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.