5 Energy ETFs At The Forefront Of Oil Rally With More Upside

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The energy sector has been shining lately on an oil price surge buoyed by a swift global economic recovery and reopening of economies that are spurring demand for energy despite concerns over tighter COVID-19 related restrictions across parts of Asia. Notably, Brent crude jumped to the highest since May 2019 while U.S. crude advanced to the highest level since June 2018.

The start of the summer driving season in the United States, the world's top oil consumer, has bolstered optimism over energy demand. This is especially true as gasoline demand jumped 9.6% on May 30, above the average of the previous four Sundays. This was also the highest Sunday demand since summer 2019, according to GasBuddy data. Meanwhile, the U.S. Transportation Security Administration (TSA) reported 1,959,593 traveler throughput at American airports on May 28, the highest number since the pandemic started grounding flights last year in March.

Inventories are also declining with gasoline stockpiles hovering at the lowest level in almost three decades while crude stockpiles at Cushing, the WTI delivery hub, has fallen some 17% below the five-year average. The Organization of the Petroleum Exporting Countries (OPEC) expects stockpiles to decline by at least 2 million barrels a day from September through December.

The OPEC and its allies agreed at their latest meeting to continue easing production cuts gradually amid a rebound in oil prices. The cartel will boost output in July, in accordance with the group’s April decision to return 2.1 million barrels per day to the market between May and July. They expect the recovery in global demand to absorb the additional supply despite the prospect of more output from Iran, should a nuclear deal be revived, and concerns over tighter COVID-19 related restrictions across parts of Asia, most notably India.

Adding to the positive sentiment is the state of backwardation in the oil futures market, where later-dated contracts are cheaper than the near-term contracts. This signals that the oil market is tightening and demand is robust, paving the way for an oil rally. This trend is likely to persist at least in the near term, acting as the biggest catalyst for the commodity.

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