The Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy ETF, is up about 5% year-to-date, but XLE and rival energy ETFs will be tested as the sector’s second-quarter earnings reports start rolling in.

Energy is expected to be one of the largest contributors to S&P 500 earnings growth for the second quarter.

“Q2 estimates moved up modestly since the quarter got underway, but the positive revisions were primarily because of the Energy sector. Excluding the Energy sector, estimates for the quarter would be modestly down in the last 10 weeks,” according to Direxion.

Although the U.S. is producing oil at or near record levels, there are some concerns that oil is not moving out of the Permian Basin quickly enough, presenting investors with an issue to monitor as energy earnings starts.

“That means that trading volume around quarterly guidance, when it’s provided, may be larger than normal,” reports Teresa Rivas for Barron’s, citing Bernstein’s Colin Davies.

Bolstered Demand for Crude Oil

A combination of diminished global output and rising global demand have helped reduce the global supply glut that dragged on oil prices for years. Production cuts from the Organization of Petroleum Exporting Countries and their allies have largely contributed to the cut in supply. Meanwhile, expanding economies around the world has bolstered demand for raw materials such as crude oil.

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