The global crude oil supply glut may have turned into a deficit on unexpected production disruptions and higher demand, bolstering oil commodity and sector-related exchange traded funds.
Leading the charge on Monday, the PowerShares S&P SmallCap Energy Portfolio (NasdaqGM: PSCE) rose 4.0%, SPDR Oil & Gas Equipment & Services ETF (NYSEArca: XES) increased 3.7% and iShares U.S. Oil Equipment & Services ETF (NYSEArca: IEZ) gained 3.2%. The Energy Select Sector SPDR (NYSEArca: XLE), the largest energy-related ETF, added 1.8%.
Meanwhile, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, was up 2.9%, United States Brent Oil Fund (NYSEArca: BNO), which follows Brent crude oil futures, was 2.5% higher and iPath S&P GSCI Crude Oil Total Return Index ETN (NYSEArca: OIL) gained 3.6% on Monday.
WTI futures were up 3.1% to $47.7 per barrel on Monday while Brent oil futures were 2.6% higher to $49.1 per barrel.
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Crude oil strengthened after Goldman Sachs analysts Damien Courvalin and Jeffrey Currie said that a decline in production due to unexpected disruptions, along with sustained demand, have created a “sudden halt” to the output surplus, reports Serene Cheong for Bloomberg.
The shifting outlook that supply losses are leading to a rebalance was also mirrored by Morgan Stanley, Barclays Plc and Bank of America Corp.
[related_stories]A number of factors are weighing on the global crude oil supply chain, including wildfires in Canada that disrupted major oil sands production in Alberta, pipeline attacks in Nigeria and outages in Venezuela. Consequently, Goldman projects production will remain below demand through the second half of the year.
Meanwhile, the bank believes global demand will grow by 1.4 million barrels a day in 2016, compared to 1.2 million predicted previously.
“The physical rebalancing of the oil market has finally started,” Goldman said, raising its U.S. crude price forecast for the second half of 2016 to $50 a barrel from $45 estimated in March.
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However, the investment bank warned that a return of some output and higher-than-expected volumes from the U.S., the North Sea, Iraq and Iran could mean that the shortfall will be 400,000 barrels a day rather than the 900,000 previously predicted, and the bank expects a return to surplus in early 2017. It cut its forecast for the first quarter of 2017 to $45 from $55, but sees oil at $60 by the end of that year.
The changes to forecasts reflect “our long-held view that expectation for long-term surpluses can create near-term shortages and leaves us cyclically bullish but long-term bearish,” Goldman analysts added.
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