Oil ETFs Gain on Optimistic Demand Outlook | ETF Trends

Oil-related exchange traded funds climbed Thursday after the International Energy Agency raised projections on global crude demand growth for the year.

On Thursday, the United States Oil Fund (USO), which tracks West Texas Intermediate crude oil futures, and the United States Brent Oil Fund (BNO), which tracks Brent crude oil futures, were up 2.6% and 2.5%, respectively. Meanwhile, WTI crude oil futures were up 2.2% to $94.0 per barrel, and Brent crude futures gained 1.9% to $99.3 per barrel.

Crude oil prices gained after the IEF raised its global consumption estimate by 380,000 barrels per day, arguing that the surging natural gas prices and electricity demand during the ongoing summer heat have pushed manufacturers and power generators to switch to oil, Bloomberg reported.

“Natural gas and electricity prices have soared to new records, incentivizing gas-to-oil switching in some countries,” the agency said in a monthly oil report.

Oil prices have dipped below $100 per barrel over the past few weeks in response to growing fears of a global economic recession in face of aggressive monetary policy tightening to combat record-high inflationary pressures.

“It looks like demand worries might be a bit overdone, and extremely high gas prices will support oil demand during winter with gas-to-oil switching,” Helge Andre Martinsen, a senior oil analyst at DNB Bank ASA, told Bloomberg.

On the other hand, the Organization of the Petroleum Exporting Countries reduced its outlook on global oil demand by 260,000 barrels to 100.03 million barrels a day for 2022 and cut the demand forecasts for 2023 to 102.72 million barrels per day, the Wall Street Journal reported.

Nevertheless, Hakan Kaya, manager of a commodities fund at Neuberger Berman, argued that demand will rebound and continue to support the energy markets, especially with China and other emerging economies remaining strong. Additionally, he also pointed out that OPEC’s recent small supply bump only further adds to bets of tight oil supplies.

“The supply is simply not there. We are entering a situation of oil scarcity and we all know what scarcity means in economics 101,” Kaya told the WSJ.

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