Oil-related exchange traded funds strengthened on Friday as tightening U.S. supplies helped support gains, but falling coal and natural gas prices helped ease fuel switching that had previously added to demand for crude oil products for power generation.
On Friday, 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 both up 0.5%. Western Texas Intermediate crude oil futures were up 1.4% to $83.6 per barrel, and Brent crude gained 0.9% to $85.3 per barrel.
Meanwhile, the ALPS Alerian MLP ETF (NYSEArca: AMLP) fell 0.3% and the JPMorgan Alerian MLP Index ETN (NYSEArca: AMJ) dropped 0.6% on Friday. The more widely observed Energy Select Sector SPDR Fund (NYSEArca: XLE) was 0.5% higher.
The energy market touched multi-year highs earlier in the week on growing concerns over a coal and gas shortages in China, India, and Europe, which fueled bets of increased demand from switching to diesel and fuel oil for power, CNBC reports.
“Weaker natural gas and coal prices would have taken away some of the support for the oil market,” ING commodities strategists said in a note.
Meanwhile, U.S. crude still headed for a weekly gain and was not far from a seven-year high as low crude oil inventory levels at the major Cushing storage location in Oklahoma helped limit any downside pressure on prices.
“There are clear concerns over the inventory drain that we are seeing at the WTI delivery hub, Cushing,” ING analysts added.
U.S. Energy Information Administration data recently showed that crude stocks at Cushing dipped to 31.2 million barrels, the lowest level since October 2018.
Royal Bank of Canada analysts argued that some of the momentum is beginning to wane in the market as investors shifted their focus away from soaring front month crude prices.
“Some investors are also trimming risk across various energies, with the rationale being that energy crisis euphoria has peaked,” RBC analyst Michael Tran said in a note, adding, “these are not necessarily our views.”
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