Energy-related exchange traded funds maintain momentum as Saudi Arabia pushes the Organization of Petroleum Exporting Countries, along with its allies, to cut production as a way to maintain elevated crude oil prices.
The Energy Select Sector SPDR (XLE), the largest equity-based energy exchange traded fund, gained 1.5% on Monday.
Meanwhile, the United States Oil Fund (USO), which tracks West Texas Intermediate crude oil futures, and the United States Brent Oil Fund (BNO), which tracks Brent crude oil futures, were up 3.7% and 4.1%, respectively. WTI crude oil futures were up 4.1% to $96.8 per barrel, and Brent crude gained 3.8% to $104.8 per barrel.
Crude oil prices surged Monday, extending the previous week’s gains, after Saudi Arabia, the top producing OPEC member, raised the possibility of curbing oil production.
“More market uncertainty has boosted prices, which is exactly what Saudi Arabia is looking to do,” Stephen Ellis, utilities and energy analyst at Morningstar, told Business Insider. “Saudi Arabia does appear more concerned about a recession, which would tank oil prices, so it wants to capture the benefit of high oil prices as long as possible.”
Some warned that the OPEC’s production curbs could come as a response to a potential return of Iran’s oil exports to international markets following a nuclear deal with the West, Reuters reported.
“Oil prices are inching higher on hopes of a production cut from OPEC and its allies to restore market balance in response to the revival of Iran’s nuclear deal,” Sugandha Sachdeva, vice president of commodity research at Religare Broking, told Reuters.
Market observers also pointed out that oil price gains on Monday were somewhat limited by a strengthening U.S. dollar, which touched a 20-year high Monday, following the Federal Reserve’s intentions to keep going with its interest rate hikes in a bid to arrest high inflationary pressure.
“While a strong dollar restrains broad commodity prices, the undersupply issue in the oil markets will probably continue to support the upside bias,” CMC Markets analyst Tina Teng told Reuters.
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