Energy sector-related exchange traded funds led markets higher Tuesday as crude oil prices hit a two-year high on growing optimism over improving fundamentals from rising demand and a diminishing global supply glut.
Brent crude oil futures broke above the $70 per barrel mark for the first time in two years, pushing toward its best close since May 2019, the Wall Street Journal reports. Meanwhile, West Texas Intermediate futures also crossed its highest level since October 2018.
The Organization of the Petroleum Exporting Countries and its allies, or OPEC+, on Tuesday agreed to ease its previous output caps on oil production, signaling its confidence in rising oil demand and a dip in the global supply glut.
“Demand growth is outpacing supply gains even with the agreed month-by-month OPEC+ production increases taken into account,” Ann-Louise Hittle, vice president of Macro Oils at consulting firm Wood Mackenzie, told the WSJ. “Sticking to increases planned at the April meeting is what the market needs,” she added.
Crude oil prices have been rallying after a technical committee within the cartel on Monday confirmed projections for the recovery of six million barrels per day in global oil demand for 2021.
Fueling the rebound in energy markets, the ongoing vaccination efforts have allowed countries across North America and Europe to roll back Covid-19 restrictions and resume normal economic activity. The rising demand should help global oil inventories to dip back below their five-year average by July, according to OPEC. Meanwhile, U.S. oil inventories have also fallen back more than anticipated.
“The bull recipe for the oil market is still intact: reviving demand, muted U.S. shale oil response together with controlled and restrictive supply from OPEC+, resulting in further declines in inventories and yet higher oil prices,” Bjarne Schieldrop, chief commodities analyst at Swedish bank SEB, told the WSJ.
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