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Oil ETFs Gush Higher on Hopes for a U.S.-China Trade Deal, OPEC Cuts

This article was originally published on ETFTrends.com.

Energy stocks and oil-related exchange traded funds led market gains Wednesday as investors shifted over to a more risk-on mood in anticipation of a U.S.-China trade deal.

Among the best performing non-leveraged ETFs on Wednesday, the Invesco S&P SmallCap Energy ETF (PSCE) rose 2.1% and the iShares U.S. Oil & Gas Exploration & Production ETF (Cboe: IEO) gained 1.6%.

The United States Oil Fund (USO) , which tracks West Texas Intermediate crude oil futures, advanced 1.8% and the United States Brent Oil Fund (BNO) , which tracks Brent crude oil futures, increased 1.8%.

Meanwhile, WTI crude oil futures were up 1.7% to $54.0 per barrel and Brent crude was 1.8% higher to $63.5 per barrel on Wednesday.

Despite the bearish inventory data that showed U.S. crude storage jumped by 3.6 million barrels last week to 450.8 million barrels, a 15-month high, Wall Street extended previous gains on optimism for a conclusion to the U.S.-China trade negotiations, along with signs that President Trump will likely sign a border-security deal to keep the government opened, the Wall Street Journal reports.

“The question is can Congress push through the deal and get it to the president before Friday to avert another government shutdown,” Dan Flynn at Price Futures told WSJ. “We also are hoping the U.S.-China talks resume with both sides intent on reaching a long-term agreement.”

Furthermore, oil found support from diminishing global supply, which declined by 1.4 million barrels per day to 99.7 million barrels in January on plummeting exports out of the Organization of Petroleum Exporting Countries, according to the International Energy Agency.

“The cartel has gone above the call of duty in curbing output as part of a new supply-cut pact which took effect in January,” Stephen Brennock, analyst at brokerage PVM, told the WSJ.

OPEC and its allies have been cutting down supply to meet an agreement made last year. The IEA calculated that OPEC reduced output by 930,000 barrels per day in January.

“We expect total OPEC production to fall to 30.31 million barrels a day in Q1 ’19, sharply down from 31.94 mb/d in Q4 ’18,” analysts at Energy Aspects said in a report Wednesday. “The new OPEC+ deal, reinforced by Saudi Arabia’s overcompliance and combined with significant production declines in Venezuela and Libya (until March), will significantly lower production.”

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