Oil prices rebounded yesterday to finish in the green after bleeding heavily since the start of the year. Investors’ decisions to book profit on the back of rising concerns that oil supply will increase further boosted oil prices on Thursday, which in turn had a positive impact on the energy sector. Meanwhile, major benchmarks finished yesterday’s session with solid gains supported by the crude recovery.
Both WTI and Brent crude, which declined below $30 a barrel recently, registered healthy gains yesterday. The prices of WTI crude and Brent crude rose 2.3% to finish at $31.20 per barrel and $31.03 a barrel, respectively. While WTI Crude finished in the green for the first time in last eight sessions on Wednesday, Brent gained ground on Thursday after losing for eight consecutive sessions.
Will It Last?
Concerns regarding further increase in oil supply in an already oversupplied market led investors to consider profit booking in the backdrop of falling oil prices. The decision to cover short positions was the main catalyst behind yesterday’s rebound. Rising speculation about the lift-off of Iranian sanctions raised concerns about a further rise in oil supply (read: 4 ETFs in Focus As Iran Reaches Nuclear Deal ).
It is speculated that the historic nuclear deal between Iran and world powers will be implemented soon and sanctions on Tehran will be lifted in the coming days. It is reported that Iran has already taken some important steps to clinch the deal. These include shipping out of nuclear fuel stockpiles and removal of machines that are involved in enriching uranium (read: No Respite for Oil and Energy ETFs in 2016? ).
It is projected that the lift-off will allow Iran, one of the world’s leading reserve holders of oil, to increase its oil exports by nearly 1 million barrels per day. Given the weak global demand and the supply glut, Iran’s oil supply will likely have a negative impact on crude at least in the near term.
Meanwhile, Saudi’s intention to buck up market share rather than restraining the freefall in oil prices also continued to dampen investor sentiment. Also, the scarcity of storage tanks globally leaves the future of oil in the lurch. Furthermore, a strengthening U.S. dollar on Fed policy tightening poses a threat to oil prices. Also, continuing increase in U.S. gasoline stockpiles added to the worries (read: Oil and Energy ETFs That Hit All-Time Lows ).
5 Energy ETFs that Gained
We have highlighted 5 Energy ETFs that closely tracks the performance of oil prices or energy stocks, which gained yesterday from the crude recovery (see all energy ETFs here ).
Energy Select Sector SPDR ETF ( XLE ), which is the broader energy sector ETF, rose 4.3% yesterday.
Vanguard Energy ETF ( VDE ) that tracks the performances of domestic energy companies registered a gain of nearly 4.4%.
SPDR S&P Oil & Gas Exploration & Production ETF ( XOP ), which identifies & selects stocks that are involved in the exploration and production of oil and gas, increased 3.5%.
iPath S&P GSCI Crude Oil TR ETN ( OIL ) that reflects the returns that are potentially available through an investment in the WTI crude oil futures added 3.4%.
United States Brent Oil ( BNO ), which looks to track the daily changes in percentage terms of the spot price of Brent crude oil, advanced about 1.9%.
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