5 Energy ETFs Making The Most Of The Oil Rally

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After registering the best month ever, the energy sector continued its bullish trend as oil price rose on vaccine optimism. The rollout of COVID-19 vaccines soon after the encouraging trial results from Moderna (MRNA - Free Report), Pfizer (PFE - Free Report), and AstraZeneca (AZN - Free Report) has raised the expectation of a faster-than-expected recovery in energy demand.

Britain began Pfizer’s vaccinations this week while Canada plans to roll out vaccination next week after being approved. The Food and Drug Administration also authorized Pfizer's vaccine for emergency use in people aged 16 and older. Additionally, reports showing Chinese demand exceeding pre-COVID levels and an uptick in Chinese refinery runs also led to a spike in oil price. A weak dollar has been supporting oil price as it makes the dollar-denominated commodity less expensive for foreign buyers.

The rally came despite the reports showing a sharp rise of 15.2 million barrel in U.S. crude inventories — the largest weekly increase since April — for the last week. In fact, Brent oil surged to above $50 per barrel for the first time since early March.

Further, the OPEC and its allies reached a fresh deal to curb oil output in January. Though the cartel will curb about 7.2 million barrels per day next month, it is lower than the current 7.7 million barrel per day cuts.

Apart from these, the energy market has been benefiting from the positive roll yield in the futures market. This is because the oil market is currently in a state of backwardation, where later-dated contracts are cheaper than near-term contracts, for months. Per CME Group data, Brent futures for March delivery were trading about 13 cents below February 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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