Despite efforts to buoy oil markets, WTI crude oil was off by nearly 4% Thursday, breaking through an important technical support level. Crude futures fell off rapidly despite an uptick in geopolitical concerns, including unrest in Venezuela and the US-backed attempts aimed at driving Iran’s crude exports to zero.
John Kilduff, founding partner at energy hedge fund Again Capital on CNBC explained,“The $62 level is an important level. If you break through it you could trade down to $58 pretty quickly.”
Oil prices were no doubt partially affected by an increase in U.S. crude inventories, after the weekly report released yesterday showed inventories intensifying by 9.9 million barrels. The data also showed U.S. oil production rising to a record 12.3 million barrels per day.
“The market is a little bit spooked that we might have a repeat of last year, where there are all these bullish factors on the supply side globally, but U.S. shale [oil]is just this big behemoth in the background,” said Tamar Essner, director of energy and utilities at Nasdaq Corporate Solutions on CNBC.
President Trump is depending heavily on Saudi Arabia to fill the gap left by Iranian oil supplies. Although Saudi Arabia has not explicitly committed to boosting production, the country says it will respond to the market’s needs as necessary.
“Saudi Arabia, the UAE, and Russia will likely fill the supply gap in the coming months, increasing the U.S. incentive to strictly enforce compliance and pressure Iran,” Paul Sheldon, chief geopolitical adviser at S&P Global Platts Analytics said in an email briefing, according to CNBC.
Oil & Energy ETF Plays
All this activity had a dramatic effect on the ETF market, where XLE (SPDR Energy) traded heavy volume throughout with sellers pushing the fund lower by 2%. VDE (Vanguard Energy) was also sold but traded on lighter volume than normal.
Investors looking to take advantage of the volatility in oil could look at SPDR S&P Oil & Gas Exploration & Production ETF (XOP), Vanguard Energy ETF (VDE), iShares Global Clean Energy ETF (ICLN), Invesco DWA Energy Momentum Portfolio ETF (PXI), Energy Select Sector SPDR Fund (XLE), or iShares U.S. Oil & Gas Exploration & Production ETF (IEO).
Still, with summer coming, energy sectors may continue to be sluggish. According to Schaeffers, the “Crude-price tracker DBO is the second-worst performing sector exchange-traded fund (ETF) over this summertime period, with only 40% positive returns and averaging a decline of 3.18%.”
For more news on Oil ETFs, visit our Oil category.