Energy sector-related exchange traded funds strengthened Tuesday after Russia halted oil flows through a pipeline to central and eastern Europe, fueling bets that Europe will be reliant on other crude oil sources.
Among the better performing non-leveraged ETFs of Tuesday, the Energy Select Sector SPDR (XLE) rose 2.0%, the Vanguard Energy ETF (VDE) gained 2.1%, the iShares U.S. Energy ETF (IYE) was up 2.0%, and the Fidelity MSCI Energy Index ETF (FENY) was 1.9% higher.
Transneft PJSC, the Russian government-owned oil-pipeline operator, stopped crude oil exports flowing through Ukrainian territory on August 4, pointing to payment issues attributed to western sanctions on Moscow, the Wall Street Journal reported.
The disruption in Russian oil exports “is a reminder of the global supply fragility,” John Kilduff, founder and CEO of Again Capital, told Bloomberg. “Concerns over the global economy remain a significant headwind, however. There is no room for error, in terms of supplies, or additional disruptions.”
The pipeline provided oil to the Czech Republic, Hungary, and Slovakia, accounting for about 250,000 barrels per day. With another energy source drying up, Europe will be hard pressed to secure crude from non-Russian sources.
The Czech Republic’s pipeline company MERO could provide some relief as it expects Russian oil supplies through its southern link should resume “within several days.”
“Crude trading is fairly lifeless ahead of U.S. CPI data tomorrow,” Rebecca Babin, a senior energy trader at CIBC Private Wealth Management, told Bloomberg. “Generally it feels like supply-driven rallies are being sold as macro-related fear overwhelm supply-related concerns. Liquidity is low and conviction is anemic.”
Russia has been cutting gas pipeline flows for many European Union members, attributing the disruptions to maintenance issues on the main Nord Stream 1 pipeline and western sanctions that have made it harder to process orders.
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