Oil, Energy Sector ETFs Gain on Improving Fundamentals

Crude oil and energy sector-related exchange traded funds were among the small areas of the market that bucked the overall negative trend Thursday after a government report revealed rapidly declining inventories amid record-high demand.

On Thursday, the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca: XOP) was up 0.2%, the Invesco Dynamic Energy Exploration & Production Portfolio (NYSEArca: PXE) gained 0.8%, and the Invesco S&P SmallCap Energy ETF (NasdaqGM: PSCE) added 0.4%. The widely-observed Energy Select Sector SPDR Fund (NYSEArca: XLE) fell 0.8%.

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 also up 1.4% and 1.3%, respectively, on Thursday. WTI crude oil futures were up 0.8% to $72.8 per barrel and Brent crude gained 0.8% to $74.0 per barrel.

According to the Energy Information Administration, domestic crude and gasoline supplies declined last week and a gauge of fuel demand surged to 10 million barrels per day for the week up to the July 4th holiday weekend, reflecting the demand recovery in a rebounding economy, Bloomberg reports.

“Clearly in the U.S., we’re seeing a strong recovery in demand,” Quinn Kiley, a portfolio manager at Tortoise, told Bloomberg. “It’s a bullish setup.”

While oil prices have advanced over the past month, the crude market has experienced a bout of volatility this week in the wake of an OPEC+ impasse. The Organization of Petroleum Exporting Countries and its allies are seeing a greater push to raise supply in the months ahead due to tightening global supplies amid strong demand recoveries in the U.S. and China.

However, the ongoing spread of the Covid-19 Delta variant is fueling fears of a slower economic recovery ahead. The World Health Organization has already urged caution on the pace of re-openings, with many regions experiencing greater infection rates.

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