Crude Oil ETFs Reflect Modest Gains Amid Hurricane Sally | ETF Trends

After a sharp selloff last week, crude oil prices are climbing higher Tuesday afternoon, ahead of the weekly crude inventory data releases, but traders are still leery about the speed of the recovery in worldwide crude demand.

Gains in crude are being partially driven by Hurricane Sally, a category two hurricane, that is a threat to both Gulf of Mexico operations and Gulf coast refiners as the storm approaches the Louisiana coastline. Around 25 percent of crude production has been closed, but offshore drillers are already readying themselves for a rapid recovery of production if necessary.

The Gulf of Mexico closure resulted in modest gains in oil prices on Tuesday morning. As of just after 1pm EST, West Texas Intermediate crude oil futures gained 3.10%, reaching as high as $38.43 a barrel, after trading as low as $37.06 earlier in the session. Meanwhile Brent crude climbed above $40.

Crude oil ETFs are gaining ground amid the news as well. The United States Oil Fund (USO) rallied 2.04% while the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) added a more modest 0.84%.

On Monday, the IEA published its adjusted demand forecast for 2020, lowering its prior projections by 200,000 bpd to 91.7 bpd, which is a slight improvement over OPEC’s 90.2 million bpd forecast.

After a few months of quick demand recovery following the April historic lows, the International Energy Agency now predicts there will be difficulties in generating further recovery of crude demand, projecting the speed of recovery to fall off significantly as most of the ‘’easy gains’’ have already been gleaned from the market.

With the coronavirus still having a dramatic impact on global demand, most analysts and energy executives are more concerned about air travel and jet fuel demand, which represents the greatest mid to long-term threat for oil markets, rather than about gasoline used for car travel. With such a key impact on crude oil demand, industry executives even suggested that refiners should adjust their product output away from jet fuel, if possible at all.

The IEA also cut its forecast for crude inventory draws for the last few months of 2020, noting that commercial crude stocks notched an all-time high of 3.225 billion barrels in July.

The agency says that impacts from a fresh wave of the coronavirus  in many countries prompted the revised forecast. Global demand from January to July fell by 10.5 million BPD compared to last year due to effects from Covid-19.

Refineries are also struggling as well say experts.

“Covid-19 has just absolutely killed the more inefficient refineries and now they have negative refining margins, so they can’t work at all,” said Bjarne Schieldrop, chief commodities analyst at Swedish financial group SEB recently. “You have refineries going out of business and a huge surplus of capacity.”

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