Energy exchange traded funds strengthened on Friday as the global energy crunch helped lift oil markets, with Western Texas Intermediate crude oil prices at their highest in almost seven years.
On Friday, the ALPS Alerian MLP ETF (NYSEArca: AMLP) increased 1.8% and the JPMorgan Alerian MLP Index ETN (NYSEArca: AMJ) advanced 1.4%. The more widely observed Energy Select Sector SPDR Fund (NYSEArca: XLE) gained 2.1%.
Meanwhile, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, were up 0.2% and 0.1%, respectively, on Friday. WTI crude oil futures were up 1.6% to $79.5 per barrel, and Brent crude gained 0.7% to $82.5 per barrel.
Growing global economic activity has helped contribute to rebounding demand from coronavirus pandemic lows, while supply is slow to pick up with the Organization of the Petroleum Exporting Countries and allied producers, or OPEC+, this week stating that they will continue to gradually bring back production, Reuters reports.
Meanwhile, the U.S. government stated that it will not take immediate action to lower prices as some previously expected relief through the government releasing its strategic petroleum reserves, further supporting the oil market.
“The fundamental backdrop is one of tight supplies that is going to continue to push these prices steadily higher,” John Kilduff, a partner at Again Capital, told Reuters.
As energy markets tightened on improved fuel demand, many warned that a cold winter could further strain supplies, especially for natural gas markets. China recently ordered miners in Inner Mongolia to increase coal production to ease its energy shortfall.
“As other energy prices like natural gas and coal keep pushing higher, upside risks to the oil market have started to build,” Bank of America’s Christopher Kuplent told Reuters.
The price run has also been supported by a spike in European gas prices, which have fueled a switch to oil for power generation.
“An acceleration in gas-to-oil switching could boost crude oil demand used to generate power this coming northern hemisphere winter,” an ANZ commodities analyst said in a note.
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