Oil and commodity-related exchange traded funds surged back into a bull market, rallying on lower U.S. output expectations and the Organization of Petroleum Exporting Countries hinting at diminished output.
Oil prices were gaining on two supply concerns. First off, according to the U.S. Energy Information Administration, U.S. oil output is lower after depressed energy prices dragged on uneconomic new investments and companies struggle to turn a profit, reports Nicole Friedman for the Wall Street Journal.
The EIA downwardly revised its estimates for production in the first five months of the year by between 40,000 and 130,000 barrels per day each month. Moreover, it said that June production declined 100,000 barrels per day to 9.3 million barrels a day.
Oil’s rapid bear-to-bull market reversal is prompting some market participants to call for more upside for equity-based energy ETFs, including the largest, the Energy Select Sector SPDR (NYSEArca: XLE).
“In a bear market, relief rallies can be both fierce and impressive but short lived. However, in the case of the XLE:arcx we should be able to experience at least a three-swing motion higher on the daily chart. Also, oscillators defined as the slow stochastic indicator (STOC-S) and the relative strength indicator (RSI) are pushed down both on a daily and weekly basis and have room to run. Also note that in the last decline since the August 12 high, the trend was so fierce it traded outside the range of the Bollinger Bands indicating exhaustion of the bearish trend. Concerning the weekly relative strength indicator, there is a bullish divergence which though small is nevertheless in place with the bullish close last week,” according to TradingFloor.com.