Saudi Arabia’s $70 Target Will Be a Boon for Energy Sector ETFs
This article was originally published on ETFTrends.com.
Energy sector-related exchange traded funds could begin to pick up ahead as the Organization of Petroleum Exporting Countries tighten their belts and target $70 per barrel crude oil, despite the increasing output of the upstart U.S. shale industry.
The Energy Select Sector SPDR (XLE) , the largest equity-based energy exchange traded fund, has gained 18.3% year-to-date, compared to the S&P 500's 14.4% rise, and the sector could continue to strengthen on the improving oil market outlook.
Saudi Arabia, the oil cartel's de facto leader, said it was steeply cutting down exports to its main customers in march and April despite refiners asking for more oil deliveries, Reuters reports.
The oil cuts are being made to support prices, according to sources close to Saudi oil policy. Saudi officials argued that the kingdom’s changing output policies are intended to balance the world market and reduce high inventories.
“The Saudis want oil at $70 at least and are not worried about too much shale oil,” one industry source familiar with Saudi oil policy told Reuters.
West Texas Intermediate crude oil futures were hovering around $59.0 per barrel while Brent crude futures were trading around $67.0 per barrel on Friday.
Another who was familiar with the circumstances told Reuters that Saudi Arabia wanted to “put a floor under oil prices” at $70 or slightly lower, adding “no one at OPEC can talk about output increases now.”
Saudi Arabia has been trying to raise government spending to bolster economic growth and officially does not have a price target. Jihad Azour, director of the International Monetary Fund’s Middle East and Central Asia department, contended that even if prices are trading around $70 per barrel, it would not help balance Saudi Arabia's books this year. Riyadh would have to target oil prices at $80 to $85 per barrel to achieve its goals.
Others who are familiar with Saudi policy also added that the kingdom does not want a repeat of the 2014 to 2016 oil crash, which sent crude trading below $30 per barrel.
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