After just a couple of weeks past a bear market fall off, crude oil futures moved backed into bullish territory Thursday. Meanwhile, some larger traders jumped into a smart-beta, energy sector exchange traded fund on the suddenly rosier outlook in the oil market.
Crude oil futures are now trading 20% higher since spending a day below $40 per barrel on August 2. West Texas Intermediate crude oil futures were up 3.1% to $48.25 per barrel Thursday while Brent crude oil futures were 2.1% higher to $50.9 per barrel. The oil markets would confirm bullish conditions if WTI crude settles above $47.41 per barrel and if Brent settles above $50.16.
Meanwhile, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, gained 2.7% Thursday and is trading back above its 50- and 200-day simple moving averages. The United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, added 2.2%.
Leading the charge on Thursday, the John Hancock Multifactor Energy ETF (NYSEArca: JHME) surged 3.6% on an exceptionally high 532,600 shares exchanging hands, compared to its average daily volume of 666 shares, according to Morningstar data. Additionally, the sudden huge creations in shares has had a limited impact on the fund’s price, with JHME actually trading at a -0.10% discount to its net asset value at last check.
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JHME’s underlying index select components based on company size where a premium is given on smaller companies over larger companies, relative price where value stocks are selected over growth and profitability where more profitable companies are overweight.
Additionally, the underlying index implements market-capitalization adjustments where it increases the weights of smaller companies and decreases the weights of larger names. The weighting methodology suggests that the ETFs may follow a more equal-weight tilt with greater exposure to smaller companies than traditional market-cap weighted index funds.
In contrast, the widely observed market cap-weighted Energy Select Sector SPDR (NYSEArca: XLE) gained 1.6% Thursday.
The oil market and energy sector have been strengthening in recent weeks on ongoing speculation that the worlds’ largest exports, including the Organization of Petroleum Exporting Countries and Russia, may cooperate and implement an output freeze at current levels to stabilize prices, the Wall Street Journal reports.
A dip in U.S. crude and gasoline inventories are also diminishing fears of a supply glut.
Moreover, the sudden bullish sentiment has caught many short traders off guard, forcing many to scramble out of bearish positions and buy back contracts, which further fueled the sharp price increases.
“When you post up a record short position of that size, the resulting unwinding tends to be rather dramatic,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc, told the WSJ. “The OPEC headlines are the spark that’s feeding the fire.”
For more information on the crude oil market, visit our oil category.
United States Oil Fund