Energy exchange traded funds continue to strengthen as a global energy crunch supports strong demand heading into the winter months.
On Friday, the ALPS Alerian MLP ETF (NYSEArca: AMLP) increased 0.3%, and the JPMorgan Alerian MLP Index ETN (NYSEArca: AMJ) advanced 0.3%. The more widely observed Energy Select Sector SPDR Fund (NYSEArca: XLE) was 0.6% higher.
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 0.6% and 0.7%, respectively, on Friday. Western Texas Intermediate crude oil futures were up 1.2% to $82.3 per barrel, and Brent crude gained 0.9% to $84.8 per barrel.
“The relative strength indicators (RSIs) on both contracts have moved higher into overbought territory and I still do not rule out a violent $5 to $8 barrel retracement lower as a result,” Jeffrey Halley, an analyst at broker Oanda, said in a note on Friday, according to Barron’s. “Any selloff will be as short in duration as the fall, should it occur. Looking at the price action today though, it seems that oil could remain in heavily overbought territory for a few sessions yet.”
Brent crude oil futures briefly touched $85 per barrel for the first time since October 2018, reflecting the latest gains in the crude oil market as the global energy crunch supports the short-term demand outlook. Crude oil prices are gaining off the heels of the surge in natural gas prices as global energy producers scramble to secure energy sources to produce enough electricity ahead of the winter months.
The International Energy Agency already warned that the crisis is spilling over to oil markets and could add 500,000 barrels a day to demand in the coming months, Bloomberg reports. The spike in demand is deepening inventory drawdowns as the Organization of Petroleum Exporting Countries and its allies, or OPEC+, only slightly eased output restraints at their latest meeting.
“It will take a trifecta of events to derail this oil price rally: OPEC+ unexpectedly boosts output, warm weather hits the Northern Hemisphere, and if the Biden administration taps the strategic petroleum reserves,” Edward Moya, senior market analyst at OANDA, told Reuters.
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