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Energy Sector ETFs Rally on Tightening U.S. Inventory levels

This article was originally published on ETFTrends.com.

Energy exploration and production sector-related exchange traded funds led market gains Wednesday as U.S. crude prices pushed back above $60 per barrel, a four-month high, on tightening oil supplies in the U.S.

Among the best performing non-leveraged ETFs of Wednesday, the Invesco Dynamic Energy Exploration & Production Portfolio (PXE) increased 2.6%,  SPDR S&P Oil & Gas Exploration & Production ETF (XOP) advanced 3.4% and  VanEck Vectors Oil Services ETF (OIH) gained 2.1%.

The energy sector rallied after the U.S. Energy Information Administration revealed tightening oil supplies with a large and unexpected drop in crude inventories due to strong export and refining demand, which helped prop up crude oil futures. West Texas Intermediate crude oil futures were up 1.7% to $60.06 per barrel late Wednesday.

Stockpiles declined 9.6 million barrels last week, compared to expectations of an increase of 309,000 barrels, Reuters reports. The drawdown was the largest since July 2018 and dragged stockpiles down to their lowest since January.

Additionally, gasoline and distillate inventories both decreased by more than expected, with gasoline stocks down by 4.6 million barrels and distillate inventories 4.1 million barrels lower.

“This is pretty much a bullish trifecta when it comes to supplies,” Phil Flynn, analyst at Price Futures Group, told Reuters. “We’re starting to see the impact of the OPEC production cuts. We’re seeing the impact of the Venezuelan cuts.”

Crude oil prices have rallied by almost a third this year on supply cuts among the Organization of Petroleum Exporting Countries and its allies such as Russia, along with renewed U.S. sanctions against oil exporters from Iran and Venezuela.

However, risks remain, especially with the demand outlook. The prolonged trade spate between the U.S. and China has weighed on global markets, fueling concerns over a slowdown in economic growth this year.

“U.S.-China trade talks continue to present a binary risk for the oil market and other risky assets,” BNP Paribas strategist Harry Tchilinguirian told the Reuters Global Oil Forum.

For more news and strategy on the Oil ETF market, visit our Oil category .