Energy stocks and sector-related exchange traded funds were among the hardest hit Thursday as a resurgence in coronavirus cases weighs on the demand outlook.
Among the worst-performing non-leveraged ETFs of Friday, the VanEck Vectors Oil Services ETF (NYSEArca: OIH) fell 5.8% and SPDR Oil & Gas Equipment & Services ETF (NYSEArca: XES) decreased 5.5% while the broader Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy ETF, was 4.5% lower.
Meanwhile, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, dropped 2.8% and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, was down 2.4% as WTI crude oil futures fell to $39.4 per barrel and Brent crude retreated to $42.2 per barrel.
“As the U.S., Brazil and other countries continue to get hammered by COVID-19, demand is at stake,” Louise Dickson, oil markets analyst at Rystad Energy, told Reuters.
The United States saw over 60,000 new COVID-19 cases on Wednesday, the biggest single-day increase by any country. Coronavirus cases have been increasing in 42 of the 50 U.S. states over the past two weeks.
“Support will disappear after this week as coronavirus cases are surging in several U.S. states,” Tamas Varga at PVM Oil Associates told CNBC, adding that a fall in prices was likely.
As states begin to reinstate restrictions on movement, fuel demand will likely fall in a slower economic recovery ahead. Data from the U.S. Energy Information Administration also revealed that U.S. gasoline stockpiles fell by a much more-than-expected 4.8 million barrels last week while demand hit its highest level since March 20.
It’s not just weak U.S. demand that could weigh on the crude oil market. In India, fuel demand declined 7.9% over June compared with the same month year-over-year.
“The Indian demand numbers were disappointing,” Phil Flynn, senior analyst at Price Futures Group, told Reuters.. “That didn’t fit the narrative we were hearing that India’s economy was bouncing back.”