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Energy ETFs Plunge as OPEC Looks to Higher Production

This article was originally published on ETFTrends.com.

Energy stocks and sector-related exchange traded funds plunged Friday as the Organization of Petroleum Exporting Countries and its allies consider raising production in light of the elevated prices.

Oil equipment and services stocks were among the worst performers Friday, with the SPDR Oil & Gas Equipment & Services ETF (XES) down 5.2%, PowerShares Dyanmic Oil & Gas Services Portfolio (PXJ) 4.6% lower and VanEck Vectors Oil Service ETF (OIH) down 4.6%. The Energy Select Sector SPDR (XLE) , the largest equity-based energy exchange traded fund, decreased 3.0% Friday.

Meanwhile, the United States Oil Fund (USO) , which tracks West Texas Intermediate crude oil futures, fell 4.2% and the United States Brent Oil Fund (BNO) , which tracks Brent crude oil futures, dropped 3.3% while WTI crude oil futures were 4.4% lower to $67.6 per barrel and Brent crude futures were down 2.7% to $76.1 per barrel.

The energy sector and oil prices pulled backed after Saudi Arabian oil minister Khalid al-Falih on Friday said he would enter into discussions in June with other OPEC members and external producers such as Russia to relax the output caps, the Wall Street Journal reports.

Heading Off Rising Oil Prices

The sudden consideration comes in response to rising oil prices that are pushing toward three-year highs and are beginning to drag on consumers. Falih, the de facto head of OPEC, warned that consumer anxiety “is a concern to us."

“You can interpret this in a bullish sense and a bearish sense,” Bjarne Schieldrop, the chief commodities analyst at SEB Markets, told the WSJ. “Putting some oil back into the market will prevent oil prices from going to $100 in the second half of 2018, which is good. But it also means that come 2019 there is no more buffer left and it is going to be needed.”

Since 2016, OPEC and a number of other major oil prices like Russia have been in a concerted effort to cut 2% of the global crude supply in an attempt to diminish the global supply glut and stabilize crude prices. Analysts now project the oil market could move into a deficit in the second part of 2018 and 2019 of 0.5 million barrels and later 0.3 million barrels per day as demand begins to outpace supply.

Furthermore, market observers warned that geopolitical risks could also increase volatility in pricing. For instance, the growing tensions between the U.S. and North Korea over its nuclear program could weigh on consumer sentiment and oil consumption.

“Oil demand could suffer if the North Korean conflict were to flare up again,” analysts for Commerzbank said in a recent note. “After all, three of the world’s five largest oil import countries are to be found in the region: China, Japan and South Korea.”

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