Energy sector ETFs surged Thursday after a surprise drawdown in oil inventories and hopes of progress in trade talks between the U.S. and China helped fuel risk-on sentiment in one of the most downtrodden areas of the market.
Among the best performing non-leveraged ETFs of Thursday, the SPDR Oil & Gas Equipment & Services ETF (NYSEArca: XES) surged 4.6% and VanEck Vectors Oil Service ETF (NYSEArca: OIH) jumped 4.2%. Meanwhile, the broader Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy exchange traded fund, gained 1.2%.
According to the Energy Information Administration, U.S. crude inventory levels declined last week, with crude stocks falling 4.8 million barrels, or more than the 2.5 million barrel draw that markets previously expected, Reuters reports.
However, Net U.S. crude imports increased last week by 934,000 barrels per day.
“We ripped higher – it’s definitely a bullish report all around,” Bob Yawger, director of energy futures at Mizuho, told Reuters. “A big import number would usually be bearish, but it didn’t seem to dent the bullish end to the equation.”
Andrew Lipow, president at Lipow Oil Associates in Houston, projects the volume of U.S. crude oil in storage should diminish in the weeks ahead before reversing course at the end of peak driving season, along with the start of the seasonal refinery maintenance period.
Positive Chinese economic data
The energy segment also strengthened on positive Chinese economic data on Wednesday and hopes that Beijing and Washington will push forward with trade talks in early October. The protracted trade war has contributed to slowing growth sentiments, along with a weakening demand outlook for raw materials like crude oil.
“The upswing itself is likely to have sparked further follow-up buying,” Eugen Weinberg of Commerzbank, told Reuters, adding that the U.S.-China trade talks were among factors boosting risk-on appetite.
However, crude oil prices pared earlier gains toward the end of Thursday’s session as investors reassessed lingering uncertainty over trade talks after being disappointed before.
“There is still a lot of uncertainty regarding a possible trade deal between the U.S. and China,” Alfonso Esparza, senior market analyst at Oanda, told MarketWatch. “We have been here before and history has taught us that a trade cease-fire could lead to even more aggressive actions.”
For more information on the energy sector, visit our energy category.