Energy markets and related exchange traded funds rallied Friday as traders looked to a potential U.S. economic stimulus package and promising coronavirus vaccines to help support the economic recovery, despite rising crude oil supply and Covid-19 infections.
On Friday, the Invesco S&P SmallCap Energy ETF (NasdaqGM: PSCE) jumped 7.4%, SPDR Oil & Gas Equipment & Services ETF (NYSEArca: XES) advanced 6.4%, VanEck Vectors Oil Service ETF (NYSEArca: OIH) advanced 6.4%, and iShares U.S. Oil Equipment & Services ETF (NYSEArca: IEZ) increased 6.7%. Meanwhile, the broader Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy exchange traded fund, was up 4.9%.
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 both 0.9% higher on Friday. WTI crude oil futures were up 1.3% to $46.2 per barrel, and Brent crude gained 1.2% to $49.3 per barrel.
In Congress, policymakers passed around a bipartisan $908 billion coronavirus aid plan, Reuters reports.
“We’re higher, despite super bearish events – it’s all about stimulus,” Bob Yawger, director of energy futures at Mizuho, told Reuters. “You can’t go home short this weekend because they could sign a deal this weekend.”
The bullish bets helped offset bearish news from the Organization of Petroleum Exporting Countries, along with its allies, or OPEC+. The group agreed on a compromise to raise output slightly from January but maintain existing supply curbs to cope with coronavirus-hit demand pressure. OPEC+ is expected to ease deep oil output cuts from January by 500,000 barrels per day with further as yet undefined increases on a monthly basis.
“500,000 bpd from January is not the nightmare scenario that the market feared, but it is not what was really expected weeks ago,” Rystad Energy senior oil markets analyst Paola Rodriguez Masiu, told CNBC. “Markets are now reacting positively and prices are recording a small increase as 500,000 of extra supply is not deadly for balances.”
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