Energy sector-related exchange traded funds were among the worst performers of Thursday as crude oil prices retreated on growing concerns of a slowdown in the fuel demand recovery, especially after the Federal Reserve’s warning on the U.S. economy.
On Thursday, the SPDR Oil & Gas Equipment & Services ETF (NYSEArca: XES) declined 3.6%, VanEck Vectors Oil Service ETF (NYSEArca: OIH) decreased 3.5% and iShares U.S. Oil Equipment & Services ETF (NYSEArca: IEZ) plunged 3.6%. Meanwhile, the broader Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy exchange traded fund, was down 1.6%.
The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, were also 0.3% and 0.8% lower, respectively, on Thursday while WTI crude oil futures were down 1.0% to $42.5 per barrel and Brent crude fell 1.4% to $44.7 per barrel.
The oil markets weakened after major producers warned of a risk to demand recovery in a prolonged coronavirus pandemic rebound. According to the Energy Information Administration, fuel demand dropped 14% from the year-over-year period over the last four weeks, Reuters reports.
In a virtual meeting of the Organization of the Petroleum Exporting Countries and allies such as Russia or so-called OPEC+, Saudi Energy Minister Prince Abdulaziz bin Salman said global oil demand should recover to pre-pandemic levels as soon as the fourth quarter, urging partners to comply with a deal to cut output in a bid to further stabilize prices in the meantime.
“The positive outcome from the OPEC+ meeting was counter-balance (to) the EIA reporting that U.S. oil inventories last week fell by (less than the) consensus,” Avtar Sandu, senior manager commodities at Phillip Futures, told Reuters.
Stockpiles of crude in the United States declined for a fourth consecutive week, but net imports rose. The 1.6 million barrel decline was less than expectations for a 2.7 million barrel fall.
Further weighing on the demand outlook, minutes from the latest U.S. Federal Reserve policy meeting revealed the pandemic would weigh heavily on economic activity.
The rise in jobless claims “is raising concerns of a slowing economy hurting demand,” Phil Flynn, senior market analyst at Price Futures Group, told Bloomberg.
“The stage is set for future strength, but demand questions remain in the immediate term,” TD Securities commodity strategists including Bart Melek said in a note. Weaker refinery runs, exports and distillate demand in the EIA report “continued to show the demand side of the equation remains volatile and uncertain.”
For more information on the energy sector, visit our energy category.